Although software giant Oracle (Redwood Shores, Calif.) enjoys a strong presence in financial services when it comes to databases and horizontal applications, much of the industry's collective IT budget had fallen outside of its purview. "We just weren't getting very much of that spend on the application side," says Andrea Klein, vice president, financial services industry strategy and marketing. "We needed to make some bold moves to change that metric."
Oracle, with about $3.9 billion in cash on its balance sheet, decided to make some acquisitions. After evaluating the core solutions providers in the banking marketplace, the company struck a deal with Citigroup Venture Capital to acquire 41 percent of i-flex solutions (Mumbai) for $593 million. Oracle will tender an offer for up to an additional 20 percent of the outstanding shares listed on Mumbai's BSE, which could lead to an added $316 million stake.
"We're squarely in the banking business now," says Klein, who notes that Oracle's not finished building out its portfolio. "There are going to be more vertical acquisitions," she says. "This is a market we want to be dominant in."
For i-flex, the benefit of Oracle's investment is that they will have a big company to power its strategy for future growth and additional sales. "They've got 8,500 banks -- I've got 579," observes Dennis Roman, chief marketing officer, i-flex solutions. "The presumption is they're going to be able to introduce us to an awful lot of people who we do not know now."
Oracle will maintain i-flex as an independent company, meaning that i-flex can preserve existing relationships with other partners, notably IBM (Armonk, N.Y.). In fact, i-flex and IBM just announced that Canara Bank (Bangalore, $25.5 billion in assets) would adopt its Flexcube core banking solution to run 2,500 branches and 25 million accounts. The system will run on IBM's DB2 database and Websphere application architecture.
But as the two companies begin to synchronize their offerings, i-flex's center of gravity will shift farther into the Oracle camp. Specifically, industry solutions for banking will build upon Oracle technologies, those both built and acquired. Other relatively recent Oracle acquisitions have included TimesTen, a provider of high-speed, in-memory databases; Oblix, a security infrastructure company; and Collaxa, a developer of business process management software. "In the short term, we're going to work on integrating a number of our core technology acquisitions into [i-flex's] product suite," says Klein.
Beyond that, Oracle intends to bring i-flex onto its Fusion middleware so that the core banking software elements can talk to other Oracle application components, such as performance management, general ledger, profitability analysis, incentives and compensation, and procurement. Then, all of these components can be accessed as "services" by banks, customers and partners throughout the value chain. "We're working with them on a next-generation product that will use the Fusion infrastructure and really optimize the applications in a different way in a service-oriented architecture [SOA]," explains Klein. "That's the point we all want to get to."
Klein believes that this is the right time to make a strong push into the core banking market. As banks get bigger and bigger, the need for new systems will become apparent. "As they continue to acquire each other, they can't process those transactions in batches," she says. "There just aren't enough hours [in the day]."