Oracle will buy a majority stake in Indian banking software vendor i-flex Solutions, the latest in a string of acquisitions designed to strengthen the U.S. company's applications business, Oracle announced Tuesday.
Oracle plans to acquire 61 percent of i-flex: 41 percent from Citigroup's venture capital unit and 20 percent from public shareholders. The database and applications vendor expects the transaction to close by the end of the year subject to regulatory approvals, it said in a statement.
The total value of the deal could reach US$909 million, Oracle Chief Financial Officer Greg Maffei said in a conference call.
It is Oracle's latest move to expand beyond general purpose ERP (enterprise resource planning) applications and into more industry specific software. The move follows its acquisitions of retail software vendors Retek Inc. and ProfitLogic Inc.
A deal with i-flex was rumored to be in the works last week. At the time, analysts said the acquisition would be significant for Oracle, which wants to compete better with ERP market leader SAP AG in the finance, telecommunications and retail sectors.
"These sectors are some of the most information-intensive, and typically have amongst the highest IT spend. Without such vertical capability, Oracle will not be able to grow its applications business as well as it should," according to U.K. analyst company Ovum.
I-flex's software is used for corporate and consumer banking, investment banking, Internet banking, asset management and investor services. Based in Mumbai, it provides software to 575 banks in 115 countries and is India's largest applications vendor, Oracle said.
The current i-flex management team will continue to run the business, aligning its product development and marketing with Oracle's goals. Charles Phillips, an Oracle co-president, will take a seat on the i-flex board. I-flex shares will continue to trade on the Bombay Stock Exchange and the National Stock Exchange of India.
Oracle decided to keep i-flex independent in order to help attract talented staff and minimize integration issues, Phillips said. Oracle does not plan to buy the 39 percent of i-flex that will remain publicly traded, Phillips said.
I-flex had revenue of $261 million for the year to March 31, up 42 percent from the year before, and net income of $46 million, Phillips said. It has more than 4,700 employees and wholly owned subsidiaries in the Netherlands, Singapore and the U.S., according to its Web site.
Oracle expects to pay $593 million in cash for Citigroup's stake. In keeping with Indian regulations it will commence an open offer for an additional 20 percent of the remaining shares of the company. Depending on how much of that 20 percent it can acquire it will pay up to an additional $316 million for those shares, for a total of $909 million, said Maffei, who joined Oracle from Microsoft a few weeks ago.
Oracle rival IBM is a partner of i-flex, and the Indian company's products will continue to run on IBM's software and hardware, Phillips said.
I-flex was founded in 1992 with venture capital from Citigroup, and Citigroup remains i-flex's largest customer, Phillips said.
"This is perfect timing (for the acquisition)," Phillips said. "The banking industry is in the process of switching from custom software to packages. They were one of the first to automate and they have a lot of legacy systems," he said.
The first phase of Oracle's applications strategy was to achieve "critical mass," which it did through its acquisition of PeopleSoft and other deals, Phillips said. Phase two is to go beyond ERP and tackle vertical markets, he said.
"Acquisitions like that of i-flex are going to be important components of that strategy," he said.
The merger will benefit financial customers by providing them with a single vendor that can provide software from the back end, including Oracle's database software, to front-end financial applications, i-flex Chairman and Managing Director Rajesh Hukku said during the conference call.
With a string of acquisitions behind it, Oracle faces challenges combining those companies with its organization, in terms of cultural issues and long-term product development, Ovum noted.