Oracle’s Larry Ellison bets on health cloud services with a US $ 28.3 billion offer for Cerner – La Tercera

On Monday, Oracle Corp. announced its biggest deal to date, a roughly $ 28.3 billion purchase of electronic medical records company Cerner Corp. that takes the enterprise software giant deeper into healthcare technology. .

The agreement extends the long-standing willingness of Oracle co-founder Larry Ellison to break into new markets. Ellison made Oracle a major business software powerhouse, in part through a long list of acquisitions spanning decades. Last year, Oracle and a group of other companies tried to buy the US operations of video-sharing app TikTok, which would have given Oracle’s cloud business a foothold on social media.

That deal didn’t happen. But, like the Cerner acquisition, it demonstrated Ellison’s desire to lift Oracle into the fast-growing business of cloud computing, where the company has long lagged behind. with respect to other large technology firms such as Inc., Microsoft Corp. and Alphabet Inc.’s Google, analysts said.

In this photo you can see Larry Ellison (left) and Sundar Pichai (right), CEO of Google.

The Cerner deal, the discussions of which were first reported last week by The Wall Street Journal, gives Oracle a significant presence in an industry that is one of the main drivers of cloud computing growth. Ellison said earlier this month that healthcare is one of the key focus areas for his company, telling analysts that it was “on par with banking in terms of how important it is to our future.”

Ellison said Monday, “With this acquisition, Oracle’s corporate mission expands to take responsibility for providing our overburdened medical professionals with a new generation of easier-to-use digital tools that enable access to information through from a voice interface (hands-free), to secure applications in the cloud ”.

Healthcare has become a major battleground for cloud-based companies, analysts say, because the industry is too big – U.S. healthcare spending accounts for nearly 20% of domestic product. country gross – and has often been slow to adopt the latest digital tools.

Cerner sells software that hospitals and doctors use to store and analyze medical records. It is the second largest vendor on the market after Epic Systems Corp. Claiming a position and betting on one of the top healthcare software providers could be a smart move for Oracle as the opportunity to move Cerner’s data to the The cloud will be huge, said Ray Wang, founder of Silicon Valley-based consulting firm Constellation Research Inc.

“Oracle has a great opportunity to enter the electronic medical records space,” said Wang. “By purchasing Cerner, you give Oracle the ability to offer Cerner in the Oracle cloud.”

Not all investors seem to agree. Shares of Oracle fell more than 3% on Monday morning, following a drop of more than 6% on Friday after news of the possible deal emerged.

The market for software that stores and analyzes medical records is on track to reach $ 29.1 billion in sales this year and could grow to $ 35.5 billion by 2025, according to Constellation Research. Much of that spending still goes to internal IT systems and is expected to migrate to cloud platforms.

Oracle was slow to move to the cloud. Ellison once scoffed at the term before trying to establish the company as a competitor in cloud services in recent years. He remains a small player among the rapidly growing giants.

Among US companies, Amazon continues to dominate with a 46.5% global market share in 2020, followed by Microsoft with 14% and Google with 4.8%, according to market research firm International Data Corp. Oracle’s cloud platform consisted of just half a percent globally in 2020, the research firm claimed.

All the cloud giants are implementing tools designed to facilitate the adoption of cloud services in the healthcare industry. Microsoft has also taken the acquisition route to enter the industry. Earlier this year it made a $ 16 billion deal to acquire Nuance Communications Inc., an expert company in speech recognition software widely used by healthcare professionals.

Cerner, a software company founded in 1979, has embraced cloud services in recent years. In 2019, Cerner selected Amazon Web Services (AWS) as its primary partner to migrate to the cloud. By acquiring Cerner, which was advised by Goldman Sachs Group Inc. and Centerview Partners, Ellison could be trying to buy a strategic healthcare customer away from Amazon, analysts said. Cerner is a customer of Oracle’s database products, but Amazon has been his preferred cloud provider.

The Cerner acquisition will easily outpace Oracle’s other large transactions, the roughly $ 10 billion purchase of enterprise software firm PeopleSoft Inc. that closed in 2005, followed by a $ 9 billion deal for the software provider in the NetSuite Inc. cloud in 2016.

Oracle said Monday that Cerner would serve as its “active anchor” to expand into healthcare services.

The cash deal, which still requires regulatory approval, values ​​Cerner at US $ 95 per share, Oracle said Monday.

Investors are concerned that the all-cash deal could slow the steady pace of Oracle’s share buybacks, according to analysts. Oracle has a market value of more than $ 250 billion.

Cerner’s shares, which rose 13% on Friday, rose less than 1% on Monday, to $ 90.53.

As Oracle’s traditional business, the sales of databases and enterprise software slowed, and he saw cloud computing generating tens of billions of dollars in business for his rivals, he has been trying to move to the cloud.

Earlier this month, it surprised investors with some success, beating second-quarter earnings expectations for the company, with total cloud revenue increasing 22% to $ 2.7 billion. Before the announcement of the deal, the company’s shares had risen more than 15% since those results and had risen more than 50% since the beginning of the year.

Brad Haller, a partner at technology consulting firm West Monroe Partners, said the deal to buy Cerner could allow Oracle to sell more software to its existing clients. Oracle has an existing business in the healthcare industry, he said, but has not entered the electronic medical records market, where Cerner is stronger.

This deal “is a huge advantage when it comes to cross-selling to existing Oracle customers,” Haller said.

If the transaction goes through, that is likely not enough to lift Oracle to the highest rungs of the enterprise ladder in cloud services. Cerner is not growing that fast. Its revenue declined 3% in 2020. Despite its partnership with AWS, it has been slow to move its business to the cloud, said Stifel Financial Corp. analyst Brad Reback.

“This agreement does nothing to fundamentally change Oracle’s lagging position vis-à-vis Microsoft and Amazon,” Reback said.

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Oracle’s Larry Ellison bets on health cloud services with a US $ 28.3 billion offer for Cerner – La Tercera