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How the Acquisition of Vocado Can Benefit Oracle

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How can the Vocado acquisition contribute to Oracle’s business?

Oracle (ORCL) recently accelerated its market share in the cloud business through increased acquisitions. On April 30, the company completed the acquisition of Vocado, which is a cloud-based financial aid solution focused on helping students and colleges manage student loans. The financial details of the deal were not disclosed.

This deal may allow Oracle to offer a complete package of SaaS solution tools educational institutions. According to Steve Miranda, Oracle’s EVP of product development, “The education industry is undergoing an unprecedented digital transformation.” The company expects this acquisition to help it tap this growing market.

In the graph above, we can see Oracle’s acquisition trend in the last five years. During this period, the company has spent ~$19.8 billion at an average of ~$4.0 billion per year on acquisitions. The graph also shows that the company made its highest acquisition investment in fiscal 2017.

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Factors driving acquisitions

Oracle (ORCL) has generated strong free cash flow over the years. The company completed fiscal 9M18 with $13.3 billion in free cash flow, compared with $11.8 billion in fiscal 9M17. It generated an average free cash flow of $13.1 billion in the last five years.

The company exited fiscal 3Q18 with nearly $70.5 billion in cash and marketable securities against $66.1 billion in fiscal 3Q17. Its total-debt-to-capital ratio in the same period stood at 0.55. This healthy free cash flow, coupled with its lower leverage, may encourage more such acquisitions for Oracle.

Oracle’s goal of acquiring new software companies may help the company boost its SaaS service while reducing the time to develop and upload new software in its cloud. The company is already lagging behind Microsoft (MSFT), Amazon (AMZN), and IBM (IBM) in cloud computing. In our view, these aggressive acquisition strategies may help Oracle improve its market share in the cloud space.

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