Aiming to dominate the healthcare applications market at a time when health science matters the most, Oracle announced a blockbuster deal to buy Cerner for $28.3 billion in cash, its largest acquisition to date.
The announcement ended an extended period when Oracle was mostly sitting on the sidelines doing few deals during the pandemic while its rivals like Microsoft were furiously making major acquisitions to shore up their presence in the strategic vertical.
As the public health crisis extends into the third year bringing more uncertainty to the business world in 2022, Oracle has finally pulled the trigger because the biggest purchase in its history represents both a defensive measure and an offensive move.
On the defensive side, the Cerner deal is a continuation of Oracle’s expansion into the healthcare and life sciences verticals after its purchases of Phase Forward, ClearTrial, goBalto and Relsys International for clinical trial management systems and drug safety since 2009. With $5.5 billion in total revenues in 2020 and more than 20,000 customers in the healthcare vertical, Cerner is the master stroke for Oracle to fortify itself with industry-specific solutions. The Cerner addition follows Oracle’s multi-decade effort to assemble the software assets needed to blanket strategic verticals including banking and financial services (iFlex), retail (Micros) and Construction(Aconex, Primavera and Textura).
All these deals help mitigate Oracle’s risks if any of these verticals, or the overall software market for that matter, faces a severe downturn in the post-pandemic era. One can even suggest that Oracle is stockpiling multiple nuclear options – or a backup of a backup if the main switch is being turned off suddenly.
Then the offensive side kicks in. Cerner, which has been closely partnering with Amazon Web Services since 2019, could unwind many of the AWS implementations that it has done for healthcare providers under the ownership of Oracle. Because of that, the Oracle Cloud Infrastructure is expected to be the chief beneficiary essentially emerging as the default public cloud environment, addressing the Infrastructure As A Service needs of Cerner’s healthcare providers especially those outside the US that will find the global coverage of OCI particularly appealing with an expected 44 cloud regions across the Americas, Asia and EMEA by the end of 2022.
If anything, the Cerner deal will make it more difficult for AWS to make further inroads into healthcare providers that it has been staking its future on with products like Amazon HealthLake for aggregating and analyzing patient population health data. The same applies to Salesforce, which has been touting its Health Cloud as the impetus for delivering improved healthcare CRM and outcome-based treatment for a wide swath of integrated delivery networks.
Then there is the Microsoft factor. As the following graphic suggests, the purchase of Cerner will pave way for Oracle to erase Microsoft’s lead in the healthcare vertical with the latest chapter still being played out as the Redmond vendor is in the process of spending nearly $20 billion to acquire Nuance for its conversational AI and cloud-based ambient clinical intelligence systems for healthcare providers.
Exhibit 1 – Top 10 Healthcare Applications Vendors in 2020, Their Product Revenues and Market Shares.
| Rank | Vendor | 2019 Healthcare Apps Revenues, $M | 2020 Healthcare Apps Revenues, $M | YoY Growth | 2020 Healthcare Market Share, % |
|---|---|---|---|---|---|
| 1 | Microsoft | 2535 | 2687 | 6.0% | 11.1% |
| 2 | Cerner Corporation | 1663 | 1660 | -0.2% | 6.8% |
| 3 | athenahealth | 1593 | 1500 | -5.8% | 6.2% |
| 4 | Oracle | 946 | 1031 | 9.0% | 4.2% |
| 5 | Allscripts | 1063 | 871 | -18.0% | 3.6% |
| 6 | Salesforce.com | 586 | 684 | 16.8% | 2.8% |
| 7 | Epic Systems | 467 | 495 | 6.1% | 2.0% |
| 8 | SAP | 339 | 433 | 27.9% | 1.8% |
| 9 | CompuGroup | 479 | 426 | -11.0% | 1.8% |
| 10 | Nuance Communications Inc. | 375 | 405 | 8.0% | 1.7% |
| Subtotal | 10042 | 10192 | 1.5% | 42.0% | |
| Other | 13369 | 14102 | 5.5% | 58.0% | |
| Total | 23411 | 24294 | 3.8% | 100.0% |
Source: Apps Run The World, December 2021
Finally, the upside potential for Oracle is considerable because there will be an increasing amount of cross-utilization of each other’s products, a scenario that is going to fuel growth for both sides based on our Buyer Insight Master Database. It is safe to assume that Oracle will be able to cross-sell its CX, ERP, HCM, Supply Chain Management and other mission-critical systems to the installed base of Cerner, while the current set of healthcare users of Oracle may have more reasons than ever to consider Cerner and its flagship clinical product Millennium and electronic health record applications their systems of record for a variety of functions from ambulatory to practice management.
Exhibit 2 – Selective Joint Customers of Oracle and Cerner in Healthcare Vertical from ARTW Buyer Insight Master Database
Source: Apps Run The World, December 2021
Despite the upside potential, Oracle will face scrutiny from government regulators given the size of the deal and the number of healthcare providers being served by both companies, even though there are not that many overlapping products from both sides and the healthcare software market remains vast and fragmented.
Unlike its previous deals to expand its horizontal solutions by buying competitors like BEA, PeopleSoft, Siebel and others, the latest deal will result in Cerner turning into its own Global Business Unit, meaning that Oracle will take time to integrate the underlying technologies between the two, a scenario that inevitably will prompt its competitors and critics to dismiss the purchase as adding nothing new to the Oracle stack or the Cerner platform.
Still, for Oracle, which has shown remarkable restraint during the pandemic even after building up a war chest of more than $18 billion in cash in its latest quarter (that’s a drop from $30 billion in May 2021 because of stock buybacks), the deal to acquire Cerner to solidify its position in the healthcare vertical underscores the salient fact that patience has its virtue.
