Oracle snags Cerner in $28B deal to gain a foothold in healthcare cloud market

Oracle is buying electronic medical records firm Cerner in a deal valued at $28.3 billion, one of the software company’s biggest acquisitions ever and one of the largest takeovers this year. 

The all-cash deal values Cerner at $95 a share and was announced Monday just three days after rumors circulated that Oracle was in talks to buy the health IT company.

The acquisition will be immediately accretive to Oracle's earnings on a non-GAAP basis in the first full fiscal year after closing—and will contribute substantially more to earnings in the second fiscal year, according to Safra Catz, Oracle's Chief Executive Officer.

Oracle also plans to expand Cerner's business into more international markets.

"Working together, Cerner and Oracle have the capacity to transform healthcare delivery by providing medical professionals with better information—enabling them to make better treatment decisions resulting in better patient outcomes," said Larry Ellison, chairman and chief technology officer, at Oracle in a statement.

RELATED: Oracle in talks to buy Cerner in potential $30B deal: WSJ

With this deal, database giant Oracle is pushing deeper into the healthcare market and the acquisition should help the company scale up its cloud business.

“Oracle’s acquisition of Cerner may be a play to get a strong foothold in the emerging cloud opportunity in healthcare. Cerner is a leading EHR vendor and healthcare is in the early stages of the cloud journey," said Paddy Padmanabhan, founder and CEO of Damo Consulting, a growth strategy and digital transformation advisory firm.

Oracle has been slow to tap into the cloud opportunity landscape relative to other big tech firms, Padmanabhan said. "The Cerner acquisition may provide the boost it needs to become a strong contender in an emerging space with significant headroom for growth," he said.

Joining Oracle as a dedicated industry business unit provides an unprecedented opportunity to accelerate Cerner's work modernizing EHRs, improving the caregiver experience and enabling more connected, high-quality and efficient patient care, said David Feinberg, president and Chief Executive Officer at Cerner, who just took the helm in August.

"We are also very excited that Oracle is committed to maintaining and growing our community presence, including in the Kansas City area," he said.

Oracle is buying into one of the fastest-growing industry verticals as healthcare is a $3.8 trillion industry in the United States alone.

"Oracle's revenue growth rate has already been increasing this year—Cerner will be a huge additional revenue growth engine for years to come as we expand its business into many more countries throughout the world. That's exactly the growth strategy we adopted when we bought NetSuite—except the Cerner revenue opportunity is even larger," Catz said.

Big software and tech giants continue to make a push into healthcare with megadeals like Microsoft's $19.7 billion bid for Nuance and two private equity firms picking up Cerner competitor Athenahealth in a $17 billion deal.

"We’ve never fully realized the value of healthcare data but as technology and machine learning continues to get better, access to patient data is the holy grail," Brad Haller, a partner in the M&A practice at consulting firm West Monroe, told Fierce Healthcare.

"If Oracle wants to be a player in this space, and obviously they do for $30 billion, they need access to patient data and can't really on third parties and just continue to be the processor," he said.

RELATED: Cerner's Feinberg says health IT giant will narrow strategic focus, confirms upcoming layoffs to 'right the ship'

Oracle is known for its massive database technology and acquiring Cerner expands the company's reach to major health systems and presents potentially lucrative cross-selling opportunities, Haller said.

Oracle can convert to Cerner to be hosted on the Oracle cloud and then leverage Cerner's strong relationships with health systems to bring them on board as well, he noted.

Mike Sicilia, executive vice president, vertical industries at Oracle said the company will leverage its autonomous database, low-code development tools and voice digital assistant user interface to rapidly modernize Cerner's systems and move them to Oracle's Gen2 Cloud.

Cerner's largest business and most important clinical system already run on the Oracle Database, Sicilia said.

"We will make Cerner's systems much easier to learn and use by making Oracle's hands-free Voice Digital Assistant the primary interface to Cerner's clinical systems. This will allow medical professionals to spend less time typing on computer keyboards and more time caring for patients," he said.