Cowen Attempts to Answer 'What is Going on with NetSuite (N)?

Cowen analyst J. Derrick Wood issued a new report on NetSuite (NYSE: N) "What is Going on with N?", after shares spiked for the 3rd time over the past 2 weeks. While the reason for today's spike is less clear, he notes the recent Oracle (NASDAQ: ORCL) takeover speculation. He also mentioned salesforce.com (NYSE: CRM) being the only logical strategic fit, although Larry Ellison would likely be apprehensive to approve such a deal.

Wood commented:

• As we highlighted in a recent note (Thoughts Around A Potential Acquisition by ORCL), we continue to think that an ORCL/N transaction has a high degree of litigation risk for Larry Ellison, as experienced with the acquisition of Pillar Data Systems. This could be especially true if ORCL were to pay the multiple now required to purchase N, which would be higher than ORCL's historic transactions. We note that the same source we highlighted in our past note is claiming that ORCL will acquire N by tomorrow during its earnings release. We note that there have been no new news sources (at least that that we have seen) claiming that a N acquisition is surfacing.
• N is currently trading at an EV/TTM Sales multiple of ~8.5x, which is much higher than what ORCL has paid for prior SaaS acquisitions. ORCL has paid an average of ~6.5x EV/TTM Sales for the last six SaaS acquisitions over the past 5 years, including RNOW (6.4x), TLEO (6.2x), ELOQ (7.6x), MKTG (7.7x), TXTR (7.2x) and OPWR (3.5x).
• It’s possible that there could be another buyer outside of ORCL. However, we think that the potential list of acquirers is very small, with CRM being the only logical strategic fit. But we suspect N’s largest shareholder, Larry Ellison, would be apprehensive to approve such a sale to a key ORCL competitor.

The firm maintained an Underperform rating and price target of $70 on N.

For an analyst ratings summary and ratings history on NetSuite click here. For more ratings news on NetSuite click here.

Shares of NetSuite closed at $83.92 yesterday.

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