Oracle Set to Acquire Instantis

Oracle Corp. ( ORCL - Analyst Report ) recently announced that it is set to acquire privately-held project portfolio management (“PPM”) software developer Instantis. However, terms of the acquisition were not disclosed. The acquisition is expected to close by the end of this year.

Santa Clara, California-based Instantis develops PPM software that helps IT departments, and product development and business process teams to track the progress of their projects. Instantis software can run both on-premise and on a cloud-based mode.

Lately, Oracle has been beefing up its presence in the rapidly growing PPM software market. In July this year, Oracle acquired Skire another PPM technology vendor. Oracle expects to integrate Instantis and Skire with its fusion application portfolio that includes its 2008 acquisition Primavera.

Instantis software follows a top-down approach, which helps customers to gain complete visibility and control of their projects. The simplicity of Instantis has attracted many big names and the company has a significant clientele, which includes Cardinal Healthcare, Abbott Laboratories ( ABT - Analyst Report ) , Credit Suisse Group AG, and Xerox Corp ( XRX - Analyst Report ) .

We believe that Instantis’s strong customer base and steady revenue stream will boost Oracle’s market share and top-line growth going forward. Moreover, the acquisition of Instantis will help Oracle to increase its penetration into the portfolio management market, in which SAP AG ( SAP - Analyst Report ) has significant presence.

Oracle remains very active on the acquisition front and is targeting companies that can be integrated within its existing or new product lines. Oracle also acquires organizations with competing technologies with the intention of eliminating rival products.

Over the last couple of years, Oracle has acquired a number of companies including small start-ups as well as big players from different fields (clinical trial to Data analytics) such as SelectMinds and Taleo (human resource), RightNow (customer relationship management), Endeca (unstructured data management, web commerce and business intelligence), Vitrue (social marketing), Xsigo (networking) to name a few.

We expect Oracle to continue to pursue strategic acquisitions of small technology start-ups that are more likely to be easy to integrate along its product lines, thereby helping it to expand customer base over the long term. The strategic acquisitions are also expected to provide Oracle a significant competitive edge over its peers going forward.

However, Oracle faces significant integration risks due to the rapid pace of acquisitions within a short span of time, in our view. Moreover, stiff competition in most of the markets from SAP, International Business Machines Corp. ( IBM - Analyst Report ) and Salesforce.com ( CRM - Analyst Report ) is expected to hurt its profitability going forward.

We remain Neutral on a long term basis (6-12 months). Currently, Oracle has a Zacks #3 Rank, which implies a Hold rating on a short-term basis.