VENdor acquisition

Vendor consolidation heated up this May, with three deals announced in just two weeks. Austin, Texas-based Versata Enterprises said it would acquire Clear Technology, a Denver-based provider of business process automation solutions; HP (Palo Alto, Calif.) said it would buy services heavyweight EDS (Plano, Texas); and Oracle (Redwood Shores, Calif.) announced its acquisition of AdminServer (Chester, Pa.). While the deals differ in nature, they provoked speculation about whether the moves would lead to further acquisitions.

According to San Antonio-based Craig Weber, Celent senior vice president and insurance practice leader, the HP/EDS and Oracle/AdminServer deals demonstrate a belief on the part of large horizontal players that there still is strong potential for sales in the insurance industry. "For big players such as Oracle and HP to make a commitment in the insurance industry shows that they are willing to verticalize their offering and that they believe that there's a long-term play in the industry," he says.

While HP's acquisition is important to the insurance industry, it is the least insurance-specific of the three. Jonathan Steiman, a New York-based analyst with Datamonitor, views the deal as validation of IBM's business model.

"HP has focused on the difficult model of generating revenue through hardware sales -- sales cycles are short, and every year you need to sell a certain amount," he says. "What IBM and other players have done is to focus on service contracts, which are longer term, making for a much more stable source of revenue."

While EDS comes with insurance vertical solution provider Solcorp, that was not a driving factor of HP's acquisition, according to Matthew Josefowicz, New York-based Novarica's insurance practice director. "The deal has to do with getting HP a stronger services organization, beefing up its ability to compete with IBM across every industry," he comments.

The HP/EDS deal "will result in a very strong challenge to IBM," adds David West, TowerGroup's research area director for insurance.

The Versata/Clear deal fits an established pattern, Novarica's Josefowicz observes, noting that over the past several years a number of successful but not runaway players have been acquired by larger players with the resources to build out their portfolios. Oracle's acquisition of AdminServer, however, adds a new dimension to the insurance-specific vendor sphere, he points out.

Attention Getter

"Oracle has a number of insurance assets, but they had not really organized them well before," Josefowicz says. "[Now AdminServer CEO] Rick Connor will take a strategic role, so Oracle is making a very clear announcement that it is ready to play in core [insurance] applications."

Josefowicz foresees the Oracle move precipitating further deals, possibly soon. "Some larger players that weren't interested in the application space are now going to look at what Oracle did and get interested," he predicts. "Also, there has been significant private equity interest in this market for a while, and with Oracle getting more acquisitive, that's the thing that will get attention from more private equity investors as well."

TowerGroup's (Needham, Mass.) West, however, disagrees. "Oracle has a long tradition of acquisition, and in no case has any acquisition resulted in a dramatic shift in the market," he contends. "It's a market with many players; [the deal] will give Oracle more capabilities but will not make it a dominant player. I don't see any major changes in the marketplace as a result of it."