Oracle Could Spend $30B Buying AWS Partner Cerner: Report

Cerner offers services around population health management, analytics, revenue cycle management and other areas, according to its website. It has a managed services wing for management and monitoring data within AWS.

Oracle is interested in buying Cerner, a health care information technology services company, for about $30 billion, according to a report in The Wall Street Journal. The deal could strengthen Oracle and Oracle partners’ offerings in cloud, health care and artificial intelligence.

Ron Zapar, CEO of Naperville, Ill.-based Oracle partner Re-Quest – which offers managed services in health care – told CRN in an interview that if the acquisition rumors are true, Cerner could give Oracle a major boost in data analytics and AI-related offerings.

“IBM has it, Microsoft has it. So it‘s really an arms race in this health care data space in the cloud at the end of the day. It’s a way for Oracle to jump to No. 1 in that space because of who Cerner is and what their history is and how much market share those guys have.”

Along with Re-Quest, Oracle partners including Avaap and Perficient have told CRN in the past that health care is a strong vertical for their Oracle practices.

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A report from Cleveland-based investment firm KeyBanc said the deal provides “potential for standalone Cerner cost improvements and acquisition cost synergies including potential movement of Cerner software and managed services onto the Oracle OCI cloud that could improve deal accretion.”

“Cerner would expand Oracle‘s current range of healthcare software offerings by adding EHIT including its core Electronic Health Records (EHR), where we believe the primary competitors are privately held Epic and AllScripts,” according to the report.

Representatives from Cerner and Oracle did not return CRN’s requests for comment.

A report from investment bank Barclays called the potential deal “not too surprising” for Cerner, as the company’s “organic growth has slowed over the past several years as EHR adoption has reached full penetration in the US market, and the company has remained challenged to post meaningful growth from additional products & services from the large EHR-related revenue base.”

“In the hands of another larger tech company, we believe the company may be better able to move into data analytics and other growth opportunities,” according to the report.

For Oracle, however, Barclays is “not fully convinced about the merits of a Cerner deal.”

“True, it would enhance another large vertical for the company. It would also add a large user to Oracle’s OCI, the company’s public cloud, and hence increase the scale of the cloud footprint,” according to the report.

However, Oracle “was just in the beginning of starting its comeback as a public cloud vendor, and spending the reported $30bn on a secondary asset when money is needed for increasing cloud CAPEX seems sub-optimal.”

“We also note that management’s credibility could suffer from such a deal,” according to the Barclays report. “After all, the message to investors was that the cloud journey is now finally taking off, despite last quarter’s beat only coming from non-cloud related license sales, so a Cerner deal could be seen as an admission that management’s cloud expansion might not be quite as high as portrayed. Lastly, we note that Oracle’s cash position after many quarters of aggressive buy backs is down to $23bn which means the deal structure would be interesting to watch, especially with the currently increased debt ratio (~2.6x Net Debt to EBITDA).”

The Barclays report also notes low antitrust risk in the potential merger.

Cerner offers services around data warehouses, population health management, analytics, revenue cycle management and other areas, according to its website. It has a managed services wing for management and monitoring data within AWS.

In July, Cerner was among the AWS partners listed as providing curated solutions and services for the new AWS for Health offering that combines AWS services and AWS Partner Network solutions used by thousands of healthcare and life sciences customers globally, according to an AWS statement from the time.

Cerner’s website also lists preferred partnerships with top global systems integrators including Deloitte, Accenture, Leidos and PwC.

Austin, Texas-based Oracle is regarded as a latecomer to cloud computing, though the company has seen signs of success for its cloud products, including surpassing Google in a recent Gartner report on the technical offerings of each of the major cloud providers.

“That’s been the big question out there -- was our cloud good enough to compete with Amazon and Google and Microsoft,” Oracle Chief Technology Officer and co-founder Larry Ellison said on an earnings call in September. “And I think we have answered those questions. It’s not only good enough to compete – in many cases, it’s much better for security, for performance, for reliability. For cost, we’re cheaper. And that’s one of the reasons we have such a big ISV business. And why so many people have left Amazon and gone to the Oracle Cloud is because we cost less. So we have significant cost advantages, And I think this is another big step to proving that the Oracle Cloud is part of the Big Four.”

Amazon Web Services is the leader in cloud by market share, followed by Microsoft and with Google in third. In 2016, Oracle bought cloud application developer NetSuite for $9.3 billion.

Cerner was founded in 1979 – two years after Oracle – and is based in Kansas City, Mo. Cerner is known for its software for electronic medical records. Its CEO, David Feinberg, joined Cerner in October after previously serving as vice president of Google Health, according to his LinkedIn account.

“One slight surprise around this announcement is the timing, as it comes on the heels of a fresh leadership change at the CEO position at Cerner, with David Feinberg just starting the role in October after joining from Google,” according to the Barclays report. “However, since Oracle has a fairly limited footprint in healthcare today (assets are mainly related to clinical trial data storage), it is possible that CERN executives (including the newly appointed) could stay in place and lead the CERN operations going forward under the overall Oracle corporate umbrella.”

Oracle Chief Technology Officer and co-founder Larry Ellison even complimented Microsoft during Oracle’s most recent quarterly earnings call, highlighting how the Redmond, Wash.-based tech giant has moved many existing customers from on-premises environments to cloud ones.

“A lot of companies like Microsoft did a great job of moving their entire Microsoft Office install base into the cloud to dramatically increase the size of their cloud business,” Ellison said during the call earlier this month. “Unfortunately, we didn‘t have the same option or opportunity.”

Ellison has had harsher words for rivals Amazon and SAP, often deriding the companies’ technology as inferior to Oracle’s during earnings calls.

Microsoft announced the acquisition of voice-to-text services company Nuance this year for $16 billion to further deepen the company’s health care offerings.

Oracle’s stock dropped about 6 percent from $103.16 at market close Thursday to $96.62 Friday afternoon.