IBM is no novice when it comes to making acquisitions. The company's software business unit has done 38 deals in the last five years. However, when IBM made four purchases in August, it turned heads in the manufacturing community -- in particular the news that it would pay $740 million in cash for asset management company MRO Software Inc.
"The MRO deal had us scratching our heads," says Ian Finley, a research director at Boston-based AMR Research Inc. The other acquisitions, such as Internet Security Systems Inc. (ISS), for which IBM agreed to pay $1.3 billion, and its $1.6 billion offer for content management provider FileNet Corp., seemed more logical, Finley notes.
Security technology, he says, has a long history at IBM. Furthermore, IBM is under increasing pressure from storage competitor EMC Corp., which entered the realm of enterprise content management last year. For engineers who need to manage design documents, the FileNet deal could be a real boon. The other August acquisition was Webify Solutions, which offers industry-specific software and services for building service-oriented architectures (SOAs). And who hasn't heard of SOA these days?
In the case of MRO, IBM paid $25.80 per share, which was a premium on the company's stock price of $21.60 at the time of the announcement. In addition, MRO and IBM share a lot of customers, as they had been business partners since 1996.
So what did IBM get when it bought MRO? And what is Big Blue trying to accomplish with its latest spending spree?
"We'd like to be the preferred infrastructure partner for our customers," said Kristof Kloeckner, vice president of strategy and technology for IBM's Software Group in Somers, NY, in an interview. "And the reason I believe we can do that is because we do not simply offer plumbing, but we also offer the knowledge of applying and extending the plumbing."
ISS, once its acquisition is finalized, will operate as an independent business under the management of IBM's Global Services unit. FileNet will add 4,700 customers to IBM's client list, and, as a leading enterprise content management company, has extensive in-house expertise that needs to remain intact. When IBM announced the pending acquisition of MRO, IBM officials noted that key management and staff would be retained at MRO's Bedford, MA, headquarters, operating as a part of IBM's Tivoli Systems business unit.
So why is IBM, a self-proclaimed "infrastructure company," buying application software companies? With each acquisition, officials say, IBM will make the software a generally available service tied together via middleware that can be wrapped around a business process or function.
"Very few customers are content to just take something off the shelf and live with it," Kloeckner explains. "All of these applications are wrapped into the context of a business process that usually requires integration of assets from many different sources. This is the world we live in, and we enable our customers to build services."
Fair enough. But does IBM really need MRO Software, which has software for IT and industrial asset management? The IT asset management aligns nicely with its Tivoli software, but managing capital equipment is a bit off IBM's path, which is fueling industry speculation that the company will spin off the traditional asset management aspect of the MRO business shortly after the acquisition is complete.
"It's weird that they paid so much money for an IT asset management company," AMR's Finley muses. "But they may get their money back by selling off the pieces they don't care about."
IBM hasn't even hinted that any portion of MRO would be on the chopping block. In fact, Kloeckner says that most corporations are realizing that managing trucks, tools, and power follows the same kind of process as managing software and IT assets. "The control of business assets is beginning to be seen as one discipline by the customer, be it IT assets or non-IT assets," he says.
Overall, the latest acquisitions fit squarely into the company's vision of services, which, according to IBM, involves the ability to take people-based processes such as security, asset management, and content management and convert them into an automated, repeatable process enabled through technology.
This article originally appeared in the October issue of Managing Automation magazine.