NEW YORK/BOSTON Informatica Corp INFA.O and BMC Software BMC.O may top the list of Oracle Corp ORCL.O takeover targets as the tech company hunts for significant acquisitions next year, analysts and bankers say.
Oracle, which has a history of big acquisitions, could be feeling pressure to do a deal after a year that saw a spate of tech industry M&A, including Intel Corp's (INTC.O) deal with McAfee MFE.N and Hewlett-Packard's (HPQ.N) acquisition of 3Par.
Many of those deals were aimed at incorporating traditional hardware companies with software, a "one stop shop" model that Oracle is trying to emulate.
The Redwood City, California-based software giant has carried out several large-scale acquisitions over the years, often buying companies that are troubled and available at a low price. Sun Microsystems is one example. During its acquisition by Oracle in 2009, Sun faced activist pressure and declining revenues.
Now Oracle is hunting for another big deal, said several of the sources. "If the target does not have the potential to do at least $500 million in revenues, (Oracle) is just not going to do it," said Richard Davis, a software analyst at Canaccord Genuity. "It doesn't move the needle."
Oracle spokeswoman Deborah Hellinger declined to comment.
The list of potential Oracle targets is lengthy, but Informatica and BMC could be at the top due to their relatively digestible size, the bankers and analysts said.
Buying Informatica, which has a market capitalization of $4.25 billion, would move Oracle into data integration, an area where it currently has no presence.
"Informatica is the only third party vendor that is on Oracle's price list," said one industry analyst, who requested anonymity because he is not authorized to speak with the press. Oracle already resells Informatica's software to its clients, who require data integration programs for combing through vast databases and pulling out relevant pieces of information.
Acquiring BMC, on the other hand, would help Oracle further build its data center and systems management businesses.
BMC's enterprise value is 8.1 times expected 2011 earnings before interest, taxes, depreciation and amortization -- a relatively low multiple, said Davis.
Informatica's multiple is 20.1 -- fairly expensive, but Oracle could cut its costs significantly, so the purchase could eventually boost earnings, he said.
Although Houston, Texas-based BMC generates about $2 billion in revenue a year, it has a market cap of $8.5 billion and is trading at a 52-week high of $47.80. A deal with BMC would set Oracle back at least $10 billion, said one banker.
BMC operates in two segments: enterprise service management and mainframe service management. Oracle would likely not want the entire company, said one banker, and would need to partner with a private equity firm.
"That's why that deal has never happened," the banker said.
Oracle, which is sitting on a $25 billion cash pile, may also look to ramp up through acquisitions of companies that serve customers outside the tech sector, in areas such as telecoms, energy and healthcare, bankers and analysts said.
For example, Oracle has expressed interest in Comverse Technology Inc's CMVT.PK CNS unit, which provides software to wireless and wireline communications, said the bankers. Oracle could also look at acquiring software and services provider Amdocs Ltd DOX.N, whose customers are in the media, telecom and entertainment industries, they said.
In healthcare, Oracle has indicated it has little interest in acquiring Internet company Cerner (CERN.O), but it could look at competitors such as Quality Systems Inc (QSII.O), said one banker.
"They won't do Cerner, as I have heard them talk that one down," the industry analyst said.
On the application side, Oracle could also look to buy Aspen Technology Inc (AZPN.O), which sells software to the oil, gas and chemicals industries, said Davis.
"It is a tasty morsel for Oracle and they would buy it just to irritate SAP," he said, referring to Oracle's big rival.
Given the consolidation in the security and storage sectors in 2010, Oracle has kept Symantec Corp (SYMC.O) on its radar, said three of the sources. Symantec, the world's biggest maker of storage management software and top computer security software provider, faces activist pressure, much like Sun did.
Oracle could reach for a more ambitious deal in 2011, spending $20 billion or more on a single acquisition, some of the sources said.
If the company decides to take such a leap, potential targets could include networking giant Juniper Networks Inc (JNPR.N), with a market cap of nearly $20 billion; F5 Networks Inc (FFIV.O), with a market cap of more than $11 billion; and even corporate data storage equipment maker EMC Corp (EMC.N), with a market cap of $47 billion.
All three have annual revenue above the $500 million benchmark: Juniper is at $3.3 billion, while EMC is above $14 billion.
But for now, Oracle may not even have a "defined dimension" as to what it is interested in or not interested in, one of the sources said.
"They have a high degree of discipline and rigor in terms of how they prioritize things," one of the bankers said. "But if anybody thinks they have succeeded or are emboldened by acquisitions, it is Oracle."
(Reporting by Nadia Damouni in New York and Jim Finkle in Boston; editing by John Wallace)