A Closer Look At Oracle’s Acquisition Of MICROS Systems – Part 1

by Trefis Team
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On June 23, Oracle Corp. (NYSE:ORCL) announced its plans to acquire MICROS Systems (NASDAQ:MCRS) for an enterprise valuation of approximately $5.3 billion. [1] MICROS Systems provides leading enterprise-wide applications, services and hardware for the hospitality and retail industries. Applications include point-of-sale, property management, central systems, business intelligence, eCommerce, customer relationship management, supply chain and vendor management, and merchandise planning management.

The acquisition of MICROS systems is expected to boost Oracle’s slowing growth in the application software market. In the recently concluded FY14 results, Oracle’s new license revenues for on-premise software deployments remained flat at $9.4 billion from a prior-year period. In addition to stagnant growth in revenues from on-premise software deployments, Oracle’s revenue growth for cloud-based deployments continued to remain lower than its competitors Salesforce (NYSE:CRM) and SAP (NYSE:SAP).

Below, we take a deeper look at MICROS’ business and product offerings. In a subsequent article, we intend to provide an analysis of how MICROS’ offerings will help Oracle.

See our complete analysis of Oracle here

MICROS Systems – Business Overview:

MICROS Systems primarily provides various cloud-based, mobile and on-premise application tools for customers in three industries, namely food and beverage, hospitality and retail. Within the food and beverage industry, MICROS caters to table service and quick service restaurants (QSR), food and beverage operations within hotels, entertainment venues (such as stadiums, arenas etc.), casinos, cruise ships and other business and government operations providing food service. Examples of MICROS customers include major QSR chains such as Costa Coffee, Starbucks, T.G.I. Friday’s; hotel chains such as Hyatt, Hilton, MGM Resort, Radisson and Wynn Resorts; and retail chains such as Ikea, Adidas, Tesco and Burberry.

The company’s software solutions are utilized in more than 567,000 hotels, casinos, table and quick service restaurants, retail, leisure and entertainment, fuel and convenience, cruise and other travel operations in more than 180 countries. An example of MICROS applications in the food and beverage industry is the electronic point-of-sale (POS) system where orders and other information from customers is collected until the final payment. This information is relayed to various departments within the establishment on an as-needed basis for its smooth functioning. In the end, billing information is relayed back from these individual electronic devices to the actual POS terminal where the customer pays the amount.

In addition to these point-of-sale systems, MICROS Systems can also be employed for various back-end purposes. The company has software application add-on modules for logging and tracking inventory listings, product demand forecasting, labor management, financial management, customer management and enterprise data management.

MICROS Systems – Financial Overview:

Fiscal 2013 revenues (ended June 30, 2013) for MICROS Systems stood at approximately $1.27 billion, compared to $1.11 billion and $1.01 billion in FY12 and FY11 respectively. The growth in revenues in FY13 was augmented by the integration of Torex into the company’s operations. MICROS derives revenues from three sources:   hardware, software and services. Proportionally, the services division is MICROS’s biggest top line contributor, with FY13 revenues of $855 million (~67% of overall revenues). Services provided include system installations and configuration, operator and manager training, on-site maintenance, professional consulting, hosting and SaaS.

Within the services division, MICROS derives more than 50% of overall service revenues from recurring service maintenance contracts. These contracts include on-site and depot hardware maintenance, application software support and credit card support, which are a significant component of the service offerings. In terms of revenue growth, the service maintenance contract business registered a 32% increase in revenues in FY13. Additionally, revenue shares for hosting services and SaaS products are also growing for MICROS Systems. Although these services generated only $86 million in revenue in FY13 (~10% of overall service revenues), we expect cloud-based services to become an increasingly significant part of MICROS going forward.

Hardware sales from MICROS account for the second biggest revenue share, with revenues growing 13% to reach approximately $270 million last fiscal year. During the same period, MICROS software sales increased marginally to approximately $143 million. Software sales reported by MICROS typically include on-premise deployments of MICROS applications on hardware systems, and excludes cloud-based software sales. Going forward, we believe the services division will remain the largest contributor to MICROS’ top line. Moreover, on-premise software sales are expected to remain under pressure as business adopt SaaS deployments at a faster pace.

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Notes:
  1. Oracle Buys MICROS Systems, Oracle Pressroom, June 23, 2014 []
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