Two months after rival SAP said it would acquire HR software provider SuccessFactors for $3.4 billion, Oracle on Thursday announced that it has entered into an agreement to acquire Taleo Corporation (NASDAQ:TLEO), a leading provider of cloud-based talent management for $46.00 per share or approximately $1.9 billion, net of Taleo’s cash and debt.

“Human capital management has become a strategic initiative for organizations,” said Thomas Kurian, Executive Vice President, Oracle Development. “Taleo’s industry leading talent management Cloud is an important addition to the Oracle Public Cloud.”

Saugatuck agrees with Jason Maynard of Wells Fargo Securities, who commented: “We like the deal, as it is consistent with Oracle's strategy to build out its applications suite, and it fills a much needed product gap. Given the many other competitors in the HR market, including SAP, Workday, Kenexa, etc., we do not expect any regulatory hurdles to getting this deal done.”

Saugatuck finds it very interesting that both SuccessFactors and Taleo are now gone, and at the hands of direct competitors SAP and Oracle. Both companies are Human Capital Management (HCM) focused. However, SuccessFactors and Taleo are only partially direct competitors themselves – as one is predominantly performance management focused (SuccessFactors), whereas the other is squarely talent management (Taleo). The only caveat is that SuccessFactors acquired Plateau Systems in April 2011, thereby adding some strong talent management capabilities, although mostly on-premises-based.

However, even more important, both Cloud providers are focused directly on the large-enterprise segment. We believe that this is a major signpost that the traditional ERP powerhouses recognize that large enterprises are now poised to acquire Cloud business solutions (SaaS) that are closer to the core at an accelerated pace.
As many industry pundits have shared, Oracle buying Taleo can be viewed as a defensive move against SAP. However, as Saugatuck’s CEO Bill McNee pointed out in a client briefing earlier this week, “we see it more as another move by Oracle to merely round out their portfolio with Cloud assets – in this case in talent management – just as they did when acquiring RightNow for Cloud customer management. In other words, don’t read too much into this, other than Oracle responding to customer demand, and ensuring they have the assets to be able to play.”

As Saugatuck pointed out in a recent Strategic Perspective and Lens360 Blogpost, the importance of the Cloud is growing in large-enterprise CIO plans and strategies.  Enterprise-focused vendors now know that progressive CIOs are no longer afraid of the Cloud – with Cloud-based HCM a great place to showcase their evolved strategy in an important and visible application area. The other major HCM Cloud pure-play targeting larger enterprises is Workday – which no doubt will re-emphasize their independence.

One CIO summed this up nicely, “Our entire IT strategy is focused on developing a Next Generation IS function through the adoption of a Business Function as a Service (BFaaS) architecture. This puts business function providers such as Workday, Concur, Salesforce and others front and center. It also is driving Cloud-based exploration and adoption of previously in-house infrastructure services and functions such as integration, BI/Analytics, Authentication, and Master Data Management.”

This blog originally appeared at Saugatuck Lens360.