Software acquisitions key

Last week’s announcement of our agreement to buy Ascential Software Corp. for $1.1 billion marks our 21st acquisition in the middleware space in just the last four years.

• Each acquisition fits into IBM's overall growth strategy of seizing new opportunities to increase share in fast-growing market segments and create high value for clients and, as a result, for investors.
• Our acquisitions range from multibillion-dollar deals such Informix, Rational and Ascential, to smaller, targeted purchases aimed at filing out our middleware business.
• These acquisitions support IBM's on demand strategy and strengthen our leadership in key segments such as business integration, application management and middleware. They also provide proof that IBM is investing in its future to gain new products, new technologies and increased customer access for greater market share and profitable growth.

Track record of aquisitions

Track record of aquisitions

IBM acquires companies for two primary reasons.

1) To get a jump-start into emerging markets.

• IBM made an early move into messaging and network management software with its acquisitions of Lotus Development (1995) and Tivoli (1996).
• In 2001, we purchased the database software unit of Informix to bolster our data management division and help us grow marketshare and gain a stronger foothold with key customers.
• In 2003, we purchased Rational to move deeper into the software development tools market, an area that is extremely important to our goal of helping customers develop applications to enable their move to an on demand business environment.
• In January 2005 we acquired SRD, which moved us into an emerging area of business intelligence called identity resolution -- used by banks and government clients seeking to identify fraud and security threats.
   

2) To fill gaps in our existing technology, round out key aspects of our portfolio and quickly move into new markets to further differentiate ourselves from the competition. 

• IBM's acquisitions in the identity management space (Access360, a provisioning and directory-enabled applications provider; MetaMerge, a virtual directory vendor) have been fully integrated into the Tivoli identity products in a way that enhances previous offerings.
• We purchased content integration vendor Venetica to strengthen our information integration strategy by offering a better solution than our competitors for managing unstructured content.
• The pending acquisition of Ascential combines two hot, fast-growing businesses -- IBM’s information integration unit produced triple-digit growth in 2004, while Ascential realized a 46 percent total revenue increase in 2004 to more than $271 million. Once the deal closes, Ascential technology will be incorporated into IBM’s existing solutions for the business integration market.

One way IBM positions itself for long-term and sustainable growth is by linking acquisitions to the high-value, innovation segments of our industry. This means opportunistically pursuing rapid shifts in the marketplace and targeting acquisitions that generate completely new revenue streams.

• When we acquired Trigo Software, we were able to move deeper into the product information management space, which is important for emerging areas like radio frequency identification (RFID) and data synchronization, where trading partners exchange product information electronically.
• Our purchase of SRD enhances IBM's presence in business intelligence, which analysts have earmarked as one of the high-growth areas in corporate software spending.
• Ascential is a leader in enterprise data integration, where spending is expected to increase from $9.3 billion in 2003 to $13.6 billion in 2008, according to IDC. Ascential will also help drive key on demand initiatives such as business intelligence, master data management, multi-channel commerce, and RFID.
• According to IDC, a typical enterprise will devote 40% of its IT budget trying to integrate information between different databases and systems. Thus information integration is a key enabler of true on demand business as well as a critical part of IT investment. And it's why IBM is further extending its information integration business with targeted acquisitions such as Venetica, Trigo and now Ascential.

In 2004, five out of IBM's six acquisitions of software companies were sourced through venture capitalists in our partnership network, extending our efforts in key growth areas such as business intelligence, business performance management and business integration. As a result, IBM's business partnerships have broadened, including an increasing number of independent software vendors (ISVs) who have adopted our offerings and built applications based on our middleware.

• Our relationships with top-tier venture capitalists are a strategic advantage for IBM and help shape emerging opportunities and insight into new markets. We have access to early-stage companies, support in building partnerships with the companies that are interesting to us, and insight during the due diligence process. The VC community represents a wealth of knowledge about evolving trends, breakthrough technologies and growth markets.
• This effort has already paid dividends. In 2004, we partnered with more than 700 VC-backed ISVs on the IBM platform.
• IBM’s software brands (DB2, WebSphere, Lotus, Tivoli) are now number one or two in marketshare in all key segments. The strategic alliances that we struck with market leading ISVs is a key reason why we've surged into these leadership positions.
• Trigo Technologies was one of the companies that attracted our attention through our VC program as we look to expand our portfolio of offerings in the information management space. As of year end 2004, there were 40,000 ISV applications based on our information management portfolio.
• Through our acquisition of Alphablox, IBM's business intelligence platform serves as the foundation for helping business partners and ISVs deliver sophisticated business intelligence applications such as specialized reporting, ERP and industry-specific solutions such as financial and healthcare.
• IBM is aligning with ISVs by industry to help solve the specific business challenges of customers in key growth areas, such as banking, financial markets, life sciences and retail. In 2004, more than 1,000 ISVs joined our banking industry network alone.
• As IT vendors continue to jockey for the loyalty of ISVs, IBM's efforts are unique. We're aggressively reaching out to new sources of innovation -- academia, VC firms, local ISVs and even individual developers -- to develop long-standing partnerships that influence next generation software development strategy

In addition to focusing on high-value business, IBM makes a concerted effort to acquire companies with whom we have a strong history or partnership, to ensure a faster, successful integration. The industry has seen many failed attempts to bring two companies together. One reason we're successful is because we find companies with whom we already have existing marketing, sales and development agreements, similar cultures and joint customers. 

• IBM and Ascential had a four-year partnership selling management software and share 550 customers.
• Our acquisition of Rational was a logical extension of a 20-year relationship between our companies. This close working relationship helped ensure that products under development before the acquisition were released on time in the months after the deal was signed.
• Systemcorp had been a long-time IBM partner when we rolled its management software tools for application development projects into the Rational brand.
• Much of Candle Corp.'s 26-year history has been devoted to supporting IBM software and hardware initiatives on several levels. As a trusted development associate, Candle had participated in ongoing research projects at IBM labs and worked with IBM to enhance education and technical support for mutual customers. The acquisition is already paying off: Tivoli's 25% earnings growth in the fourth quarter of 2004 was due in part to strong results from Candle technology.

One sign of a successful acquisition is when a company grows at a faster rate after it was acquired; another is when the new technology being purchased gets swiftly integrated into the existing IBM product set. IBM’s powerful presence in enterprise markets, the vast global reach of our business partner network, and access to the largest software sales force on the planet helps spreads the benefit of new products to more customers at an accelerated rate.

• Rational has received high marks on both counts -- the unit exceeded profit expectations in its first year of being acquired, and just months after the closing IBM successfully rolled out two new Rational-based products, as well as completed the integration of Rational's sales and development operations.
• Prior to acquiring CrossWorlds, IBM lacked some of the key technology to deliver a complete business integration solution for its customers. CrossWorlds’ template and application adapter technologies were key to rounding out IBM's WebSphere Business Integration portfolio.
• Within six months of purchasing Think Dynamics, the company's resource automation software was rolled into our Tivoli brand and IBM was able to deliver orchestration expertise to customers.
• The same month that IBM announced it was buying this document management software provider Green Pasture, we announced our new DB2 Document Manager product based on Green Pasture technology.

 IBM spends six months to a year planning the integration of a target company into IBM. Our success is the result of a structured and disciplined approach, with clear strategic objectives, detailed implementation plans and a focus on creating and capturing value. 

• Product integration. New products and technologies are quickly integrated into IBM’s sales and distribution network – accelerating sales
• Transition management. Merger transition teams headed often by high-ranking IBM executives.
• Employees. We set up an elaborate "buddy system" to link IBMers with employees from the acquired company. This lead to the successful integration of Rational's more than 3,000 employees into IBM.

Aquisitions done right

Aquisitions done right

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