In an announcement that has been highly anticipated by the analyst community, IBM today said it plans to acquire business intelligence vendor Cognos in an all-cash deal valued at approximately $5 billion, or $58 per share.
The two companies have a wealth of technology and revenue synergies, observers said, including an 18-month-old joint sales partnership. For its part, IBM sells database and middleware software and services, while Cognos provides services-oriented architecture (SOA)-enabled BI and performance management tools, including reporting, planning, budgeting, and forecasting.
Adding BI to its portfolio gives IBM an end-to-end offering for managing and analyzing business data, the company said, and will edge IBM closer to its 2010 goal of delivering double-digit growth in earnings per share by driving revenue through new markets. To that end, IBM expects the Cognos deal — which is pending approval and expected to close in the first quarter of 2008 — to be accretive in 2009.
External market factors also may have influenced the deal. The BI software market will grow almost 12% this year, according to research firm IDC, which pegs it as a $7.8 billion market in 2008. Couple that outlook with the recent acquisition activity in this area among enterprise application vendors, and it was inevitable that IBM would scoop up Cognos, industry observers said.
Following SAP's acquisition last month of Business Objects and Oracle's March 2007 purchase of Hyperion Solutions, Cognos was one of the few remaining independent BI vendors, said Dave Kasabian, an analyst with AMR Research.
"I think there was some level of urgency from IBM, which may have thought if they don't buy [Cognos] now ... someone else may pick them up," Kasabian told Managing Automation.
Given that the cross-selling agreement between the two companies included a degree of application integration, IBM may not have been willing to risk losing Cognos, Kasabian added. "They've been in this dating scenario for 18 months, so now they've decided to get married," he said.
The impact on end users is expected to be minimal, as IBM will continue to support customers' heterogeneous BI systems and environments. The challenge, analysts said, will be in how IBM can win over BI customers that use SAP or Oracle for ERP, given that both vendors now have their own BI offerings.
To drive this forward, IBM will need to look to its current customer base, which has been working with IBM technology and consulting services and views the company as a solid partner, Kasabian said. "IBM will need to leverage [these] internal relationships."
IBM is building out those relationships through its Information on Demand strategy, an initiative, announced in 2006, that involves integration, content and data management, and business consulting services, all aimed at giving customers immediate access to all manner of enterprise data, regardless of where it resides in the various systems that comprise the business. The addition of Cognos' BI capabilities expands the Information On Demand software portfolio, which, over the past year and a half, has grown to include enterprise content management, through IBM's acquisition of FileNet, and enterprise asset management through its purchase of MRO Software.
Cognos, which is the 23rd acquisition IBM has made to jumpstart its Information on Demand business, has been busy beefing up its own portfolio. Just last month, Cognos purchased Applix Inc. to add deeper analytics to its business performance solution.
"IBM is a perfect complement to our strategy, with minimal overlap in products, a broad range of technology synergies, and the resources, reach, and world-class services to accelerate this vision," said Cognos President and CEO Rob Ashe in a statement. "Furthermore, this combination allows Cognos customers to leverage a broader set of solutions from IBM to advance their information-management-driven initiatives."
Following the acquisition, Cognos will be integrated into IBM's Information Management Software Division. Ashe will lead the group, reporting directly to division General Manager Ambuj Goyal.
For its fiscal year ended Feb. 28, 2007, Cognos reported net income of $115.7 million on revenue of $979.3 million.