Cloud Computing Takeover Targets

Grazed from Seeking Alpha.  Author: Editorial Staff.

Over the weekend, SAP AG (SAP) announced its $3.4 billion acquisition of SuccessFactors for $40 per share cash. The deal greatly accelerates SAP’s cloud strategy as a provider of cloud applications, platforms and infrastructure.

Under the category of “everything old is new,” cloud computing is perhaps the hottest computing segment in tech land. The cloud, or software as a service (“SaaS”) takes us “back to the future” as we strain to remember as high school/college students when “timesharing” was a popular buzz word, whereby terminals were scattered throughout campus that were tied to a large mainframe computer that was housed offsite. At any rate, SaaS in its simplest refers to centralized hosting of business applications…

The move by SAP to accelerate its loud strategy follows a similar move by Oracle (ORCL), which bought RightNow Technologies (RNOW) in October for $1.4 billion. The conventional wisdom (as evidenced by Wall Street’s reaction Monday morning to the SAP deal by bidding up other names in the cloud space) is that there are not many significant assets available in the cloud space and that all large software/computing companies should take heed and make their move now or risk being “left at the station.” Therefore, we have decided to take a quick look at some possible takeover targets currently available in the cloud. Here are the first five of the ten candidates we have identified:

Ariba, Inc. (ARBA) is a $3.2 billion market cap company with an average daily trading volume of 2.6 million shares. Ariba was founded in 1996 to revolutionize collaborative business commerce solutions. Today the Ariba Commerce Cloud is home to more than 700,000 companies and is the leader in trading network volumes. With its size, history and reputation Ariba would provide any company with an instant and meaningful presence in the cloud.

Citrix Systems, Inc. (CTXS) is a $13.6 billion market cap company with an average daily trading volume of 2.6 million shares. The company was founded in 1989 and is headquartered in Florida. Citrix with revenues for FY 2011 targeted to be $2.2 billion would be a transformational acquisition for an industry player wanting to bulk up quickly. Due to its sizable market cap the number of suitors is small; somewhat helping the situation is that the company holds $1.5 billion in cash and investments.

Cornerstone OnDemand, Inc. (CSOD) is a $882 million market cap company with an average daily trading volume of 206,000 shares. This Santa Monica, California-headquartered company is growing quickly (50% per annum) on the revenue side, but is still generating red ink. The company is a pure play on SaaS, and would be an easily digestible acquisition due to its small size.

DemandTec, Inc. (DMAN) is a $275 million market cap company with an average daily trading volume of 259,000 shares. The company was founded in 1999 and is based in San Mateo, California. DemandTec is another pure play and has the smallest market cap of the companies we have reviewed. It currently trades at less than three times next years estimated revenue and would be a bite sized acquisition for most. Additionally, its cash in the bank represents 25% of the current market cap.

Kenexa Corporation (KNXA) is a $796 million market cap company with an average daily trading volume of 243,000 shares. The company operates in the same SaaS space as SuccessFactors. The company is estimated to earn $0.83 this year and $1.06 next year. Revenue this year should be 288 million and $329 million next year. As a pure play with good earnings, Kenexa looks like an attractive bolt-on acquisition that could be done without much dilution.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.