(ORCL) Oracle Set to Buy Involver

Oracle Corp (ORCL) is on an acquisition spree in order to expand its social media offerings. The database application vendor recently announced that it has agreed to buy social marketing software developer Involver Inc. for an undisclosed sum. The transaction is expected to close by the end of the third quarter of 2012.

San Francisco, California based Involver develops marketing applications that can be deployed exclusively on Facebook (FB). The startup has a significant clientele that includes Best Buy Co. (BBY), Toys “R” Us Inc. and Viacom Inc.’s (VIA) MTV Networks.

Social media marketing tool providers have become prime acquisition targets lately. This is due to the growing influence of social media such as Facebook and Twitter on customers’ lives. Marketers on a regular basis are using social media platforms to market their brands and also interacting with existing and prospective customers.

According to Forrester Research, advertiser spending on social media is expected to increase at a compounded annual growth rate (CAGR) of 26.0% for the period of 2011-2016. At the same time, the market for social media management tools is expected to double to $970 million in 2016 from $389.0 million in 2012.

This staggering growth potential is attracting the likes of Oracle, Salesforce.com Inc. (CRM), Google Inc. (GOOG), Microsoft Corp. (MSFT) and SAP AG (SAP). To gain an upper hand, these large vendors have been picking up companies, which they expect would not only expand their product portfolios but also provide a competitive edge.

In June this year, Salesforce announced the acquisition of Buddy Media Inc. for $689.0 million. At the same time Google acquired Meebo. In late June Microsoft announced the acquisition of Yammer Inc. for $1.2 billion in cash. However, Oracle has been the most aggressive of the bunch in recent times. The Involver deal is Oracle’s third social marketing buyout over the last three months.

In May this year, Oracle acquired Vitrue for approximately $300.0 million. Vitrue offers solutions, which marketers use to collect and collate social interaction data from Facebook, Youtube, Twitter, Google+ and many other social networking platforms. In June, Oracle announced the acquisition of Collective Intellect, a social media monitoring firm.

We expect Oracle to continue to pursue strategic acquisitions of small technology startups 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.

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.

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