Oracle Corp.'s planned $495 million acquisition of Agile Corp., announced yesterday, signals the software giant's renewed interest in the product lifecycle management (PLM) market as a strategic opportunity, as well as a willingness to challenge archrival SAP AG in some of that company's core manufacturing vertical industries, experts said.
Oracle said it will pay $8.10 for each share of Agile. The proposed acquisition, subject to regulatory and shareholder approval, is expected to close in mid- to late July, Oracle said.
"We consider [Agile] to be a leading provider of PLM management solutions with very deep industry and domain experience, plus a strong, referenceable set of customers," said Jon Chorley, Oracle's vice president for supply chain execution and product lifecycle management strategy, in an interview with Managing Automation. Chorley estimated that about half of Agile's 1,250 PLM customers use Oracle applications.
"That means that, out of the gate, we have a product with shared customers and proven integration that will allow us to rapidly sell the product into our installed base," Chorley added.
Oracle also plans to sell Agile's set of product data collaboration and other tools as stand-alone, best-of-breed products into the installed base of SAP and other competitors, he said. "SAP does not have a strong PLM solution," Chorley maintained. "We now have a strong solution ... We will be very pleased to be able to help SAP customers satisfy their PLM requirements."
SAP officials did not respond by press time to calls seeking comment on the acquisition.
In fact, experts said yesterday, Oracle, with this acquisition, is playing catch-up to SAP in the PLM space. SAP last year sold $500 million in PLM software and services, according to Ed Miller, president of consulting firm CIMdata Inc.
While that is a relatively small piece of SAP's overall business, PLM has, until now, represented a competitive advantage for SAP over Oracle, explained Jim Shepherd, a senior vice president at AMR Research. "We've seen competitive situations between SAP and Oracle where PLM has become an issue," he said. "It may not be at the top of most companies' lists, but when one vendor has it and the other doesn't, it can be a differentiator."
Oracle's addition of Agile's PLM products — particularly the new Agile 9.2 suite — gives the ERP vendor a strong competitor to SAP's PLM offering, Shepherd said.
Besides giving Oracle a credible PLM offering, the Agile acquisition would strengthen Oracle's competitive position in manufacturing markets, such as high technology, life sciences, consumer products, and food and beverage. Those are some of the markets where SAP has held a competitive edge over Oracle, experts noted today.
"The acquisition of Agile will allow Oracle to begin to take the game to SAP in its heartland," wrote David Mitchell, software practice leader at market research firm Ovum, in a prepared report. "In this respect, the gloves are coming off. However, nobody should expect an immediate short-term market shift."
The Agile acquisition continues Oracle's aggressive, three-year growth-through-acquisition run, during which the company has bought large enterprise application suite providers such as PeopleSoft and JD Edwards, as well as fill-in best-of-breed vendors such as transportation management software provider GLog.
The deal also marks a continuation of a consolidation trend in the PLM software arena, which, according to CIMdata, grew by 10.4% last year to $20.1 billion. Dassault Systemes last year acquired PLM vendor MatrixOne. And recently, Siemens announced plans to acquire PLM and CAD leader UGS. That consolidation trend had left just five leading PLM providers: Dassault, UGS, PTC, SAP, and Agile. After Agile's acquisition by Oracle, CIMdata's Miller noted, two of the five leading PLM providers — SAP and Oracle — will be large ERP vendors. Unlike their PLM counterparts Dassault, PTC, and UGS, neither Oracle nor SAP provides CAD software for product design.
With the ongoing consolidation in the PLM space, Agile was by far the smallest of the remaining five leading PLM players, with annual sales in the range of $130 million. The need to gain critical mass in order to compete in a PLM market increasingly attracting large software vendors was a prime motivator in Agile's willingness to be acquired, said Agile President and CEO Jay Fulcher, in an interview with Managing Automation.
"Scale is such an imperative in the enterprise software space," he said. "We were at a run rate of $134 million, which is a very difficult size to be and still maintain all the things that are important about being a public company."
Indeed, over the past two years, Agile has had difficulty achieving consistent profitability. In its most recent quarter, ended January 31, Agile reported a net loss of $5.8 million on revenue of $33.2 million, up just 1% over the same period a year earlier.
In recent quarters, although the Agile 9.2 product line has continued to see strong demand, the company has blamed extended customer buying decision periods and sagging services revenue for slow growth and losses. Agile also has had to contend with a review of its employee stock option-granting practices.
Over the past few years, Agile has attempted to gain critical mass on its own. Two years ago, the company acquired product data visualization software vendor Cimmetry Systems Inc. for $41 million. And a year ago, it acquired Prodika, a PLM software provider for the food and beverage industry.
In an interview with Managing Automation soon after becoming CEO, Fulcher said his goal was to grow Agile to $200 million in revenue through product line and geographic market expansion and additional acquisitions.
Soon after taking over as CEO in January 2006, however, Fulcher also began searching for potential buyers for Agile, he said today. The company hired advisers to help with the search and spoke to many potential buyers, Fulcher said.
"We talked to a lot of different parties," he said. "There was no shortage of interested parties."
Fulcher said he identified Oracle as the most likely potential buyer for Agile early in the process. While Fulcher did not identify other potential buyers, AMR's Shepherd speculated that SAP, other PLM providers, and private equity firms probably reviewed the opportunity.
"It's not really a surprise that Oracle ended up with Agile," Shepherd said. "The surprise is that it took this long. It's something that both companies wanted ... Once MatrixOne went away, there weren't a lot of viable options for Oracle."
Ironically, following the announcement of Oracle's acquisition plans, Agile yesterday released preliminary results for its fourth fiscal quarter that showed positive growth signs for the company. Agile said its revenue for the quarter ending in April is expected to be in the range of $37 million to $38 million. That's up from $34 million to $35 million the company predicted in March. Agile also said it expects to report non-GAAP net income for the fourth quarter of $.04 to $.06 per share, up from the $.01 to $.02 per share the company foretold in March. Agile expects to report a GAAP net loss for the quarter of $.04 to $.06 per share.
Oracle plans to merge Agile's software development and sales operations into Oracle's software development and sales operations units, Chorley said. Agile's product management functions will become part of Chorley's supply chain management product group.