The battle between SAP and Oracle (News - Alert) took another interesting step forward over the weekend when the German business software maker agreed to fork over $3.4 billion in cash to acquire California-based SuccessFactors, a provider of cloud-based human resource management software.

The move underscores both the intense rivalry between SAP and Oracle – which made a similar acquisition in October when it agreed to purchase RightNow Technologies (News - Alert) – and the growing importance of the cloud for large software vendors.

SAP – a company that has so far struggled with its cloud strategy – paid quite a premium for SuccessFactors, which lost around $12.5 million on $205.9 million in revenue last year. The $40 per share offer represents a whopping 52 percent premium on Friday's closing price of $26.25.

“The premium is significant and it shows that SAP was struggling in its cloud strategy, especially in talent management,” Forrester (News - Alert) analyst Paul Hamerman told the New York Times. “The cloud has been a small part of SAP’s (News - Alert) revenue stream, about 2 percent; the deal adds to the revenue base and shows SAP’s strong commitment to the software-as-a-service business model.”

The question remains, however, whether the SuccessFactors acquisition is a strategic counter to Oracle's RightNow purchase or rather a simple act of desperation, especially considering the price. Bloomberg points out that SAP is paying eight times SuccessFactors' anticipated revenue for the coming year. In contrast, the last 32 North American software companies that have been acquired have been paid a three-fold premium.

“You get what you pay for and if you want the crown jewel in this industry, you have got to pay for it,” co-CEO Bill McDermott told the news source, adding that the move could add up to $1.3 billion to SAP's 2015 sales forecast.

So far, the move is being met with resistance by analysts and investors alike. A number of well-known Wall Street analysts have downgraded the stock, leading to early losses in pre-market trading on Monday. Meanwhile, SuccessFactors shares skyrocketed more than 50 percent in pre-market trading.

The aggression shown by both SAP and Oracle has given an early boost to other smaller software competitors, especially those in the cloud space that are hoping to take advantage of the M&A battle. Shares of SuccessFactors' rival Taleo are up 14 percent in early morning trading, with BMO increasing the stock's price target from $28 to $40, noting that it is “the most-obvious acquisition candidate and that Oracle is the most obvious buyer.”

Beecher Tuttle is a TMCnet contributor. He has extensive experience writing and editing for print publications and online news websites. He has specialized in a variety of industries, including health care technology, politics and education. To read more of his articles, please visit his columnist page.

Edited by Jennifer Russell