In the never ending speculative drama about Sage’s future it seems that Zach Nelson, CEO NetSuite has tossed his hat in the ring. According to Martin Veitch over at CIO UK:
“I can see a day when NetSuite buys Sage,” he says. “There’s an opportunity to be the big gorilla. We are already becoming the 800lb gorilla in the professional services segment.”
Unfortunately I saw this just after I’d done a catch up call with the company otherwise I would have asked Zach – did you really say that? But more seriously, could and should NetSuite harbor such ambitions?
On the upside, NetSuite would gain access to a large pool of developer and reseller resources that it doesn’t have today along with a company that is selling high margin services but not much else right now.
On the downside, it would gain access to a large pool of developer and reseller resources that have almost no experience in building and selling SaaS/cloud applications along with the one thing NetSuite doesn’t have…a rat’s nest of code bases and businesses run in a totally decentralized manner around the world. There’s also the small matter of Sage not having much to offer in the way of cloud systems. And if that wasn’t enough to be thinking about then the two cultures are very different. In the same interview, Mr Nelson said:
He [Nelson] tries to follow Ellison’s [CEO Oracle] example of hiring “people who listen to you and can execute, find the right guy at the right time.”
That’s code for: I’m the boss, what I say goes, you go do as I’ve said. Sage on the other hand is run locally with few central decision makers involved. Not much of a fit there then.
There is another, more prosaic issue: NetSuite is currently valued at $1.35 billion on less than $200 million in sales revenue and negligible profit. Sage is valued at £3.52 billion…that’s a P/E of 18.4. You’d have to price Sage at something in excess of £4.5 billion in any sale for it to make institutional shareholder sense. That’s something around $7.2 billion, way out of NetSuite’s reach. But is it in the long term? Sage new deal sales are stagnant or falling while NetSuite continues to grow in double digits. The near term ambition is to reach $500 million which would imply a future valuation in the $3.5 billion range. That would still make Sage too big to swallow even if Sage’s share price remained stagnant.
While it is always entertaining to listen in on CEO musings, this is one I will be ignoring in the short and medium term. I’m more interested in the upcoming NetSuite earnings call scheduled for midnight my time later today.
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Hi Dennis. Apologies for the dumb question, but I’m coming to this late – why is Netsuite separate from Oracle?
NetSuite is a separately traded company on NASDAQ. Larry Ellison happens to own a lot of shares in NS but that’s it.
Thanks! That’s kinda strange isn’t it? Surely there’s overlap with Business By Design, or are they targeting different markets?
That’s a different topic. NetSuite wants BYD to be successful because SAP is the ‘big dog’ brand that validates the market where both play. NetSuite is gambling on having a better footprint in verticals. It’s a long game where there can be more than one winner.
Pure marketing fluff – as you say, such a deal is way out of reach financially for $N. If anything actually WAS actually in the works Zach wouldn’t be musing about it like this. Maybe more likely the other way around?
Hi Dennis. Apologies for the dumb question, but I'm coming to this late – why is Netsuite separate from Oracle?
NetSuite is a separately traded company on NASDAQ. Larry Ellison happens to own a lot of shares in NS but that's it.
Thanks! That's kinda strange isn't it? Surely there's overlap with Business By Design, or are they targeting different markets?
That's a different topic. NetSuite wants BYD to be successful because SAP is the 'big dog' brand that validates the market where both play. NetSuite is gambling on having a better footprint in verticals. It's a long game where there can be more than one winner.
Pure marketing fluff – as you say, such a deal is way out of reach financially for $N. If anything actually WAS actually in the works Zach wouldn't be musing about it like this. Maybe more likely the other way around?
Get into the conversation