The Oracle-SAP Bids For Retek and History Review

The following has been cross-posted at The CIO Weblog but is also listed here as it references some core M&A valuation studies done in the management consulting industry. What is only lightly touched upon here is the importance of program management and operations during deal follow-through (operations and execution have been my past bread and butter work [shameless plug]).

Oracle’s latest bid for Retek, a category leader in business management software for large retail chains, could be a windfall for Retek shareholders. Oracle’s bid at $504 million US ($9.00/share) outpaces SAP’s bid Tuesday for $496 million US ($8.50/share).

Where this will ultimately wind up is anybody’s guess, but here are some facts pertaining to what has happened with this deal, and what has happened historically with other companies with respect to both shareholders and customers:

• SAP’s bid of $8.50/share represented a 42% premium over Retek’s price of $6.00/share on the close of February 25. Shares of Retek have recently soared 21% to $10.40 (source).
• Past McKinsey studies have shown that shareholders of acquired companies have received on average a 20 percent premium on friendly M&A (source).
• Many mergers have failed largely because bidders paid too much ("the winners curse") with average takeover premiums in the 40% range (source McKinsey).
• Although other studies by consulting firms such as Boston Consulting Group have shown that  companies  that systematically pursue acquisitive growth outperform competitors that pursue few or no merger deals, the large majority seem to agree that if deals go through post-acquisition integration is *key*.
• BusinessWeek investigation in 2002 and 2004 have shown that big M&A deals have left customers dissatisfied half of the time (source).

So deal makers ought to take extra pause and pay attention to operations and the customer, especially since Retek is a prized category leader. On the good news side of things, boards seem to have been getting smarter about  M&A all the time.

Steve Shu
Managing Director, S4 Management Group