Oracle Gets a Healthy Deal for Phase Forward

When it comes to M&A, Oracle (ORCL) always seems to be in motion. The company spent considerable time putting together its $7.4 billion transaction for Sun, but now it looks like the tech giant is ready for more action. On Friday Oracle agreed to a $685 million acquisition of Phase Forward (PFWD). This is a smart deal that will increase Oracle's position in the growing market for health care enterprise software.

A Leader in the Industry

Dr. Paul Bleicher founded Phase Forward back in 1997 because he had to deal with the aggravation of paper-based clinical trials for new drugs. So why not use software to help the process? It was certainly a big idea.

However, when dealing with the medical industry, things can take a long time -- and the case of Phase Forward was no different. To get traction, Phase Forward had to raise large amounts of capital, launch a public offering and make various acquisitions, such as for Lincoln Technologies. And while all this has taken time, the strategy has paid off. Now, Phase Forward is a leader in the industry with its InForm platform, which handles the complete life cycle of clinical trials. In fact, over the company's history, there have been more than 10,000 implementations with over one million participants.

InForm definitely has a strong value proposition, helping to reduce costs, improve regulatory compliance and even speed time-to-market. In all, it has 335 customers and many are fairly large, such as Merck (MRK), Genzyme (GENZ) and Novartis (NVS), according to the merger presentation.

Always Moving Forward

Phase Forward has the key financial ingredients that Oracle likes to see in a deal. Last year, the company's revenue increased 25% to $213.3 million and net income was $11.2 million. Next, the company has strong barriers to entry because of its heavy investment in its technology. In fact, it looks like 2010 will be another solid year for growth.

However, it is not easy being an independent enterprise software company, especially in a market like health care. There is a big need for Phase Forward's software, but the sales cycle can easily take one to two years.

As part of Oracle, Phase Forward should have more leverage -- and time -- to bolster its customer base. What's more, it may help with capitalizing on massive market opportunities, such as the move towards medical records. No doubt, a solution like Phase Forward's will be a key to making this a reality.