IBM to buy business software firm Cognos
IBM Corp. is making its largest acquisition ever, a deal announced Monday to buy Cognos Inc. for $5 billion in cash in an effort to keep up with rivals in “business intelligence” software.
The deal would follow similar moves in the same market this year. SAP recently linked up with Business Objects for $7 billion and Oracle Corp. grabbed Hyperion Solutions Corp. for $3.3 billion. Cognos shares had soared recently on expectations that it too would be acquired.
Business intelligence software helps big organizations gather data in “dashboards” that can be used to model such things as the financial effect of staffing changes or marketing moves.
Because that capability meshes with other things business software does, big vendors such as SAP, Oracle and IBM have moved to include business intelligence applications in their product packages.
But their challenge will be to technically integrate such products in a way that is easier and less expensive for customers. David O’Connell, a senior analyst with Nucleus Research, said he was skeptical that would happen with IBM and Cognos.
“I’m not sure it will become more than a bolt-on,” he said.
Forrester Research’s Paul Hammerman agreed that it could take time for IBM to produce compelling technological linkages, but he added, “I don’t see any downside for customers.” IBM and Cognos already had a business partnership.
IBM has been on an acquisition tear in recent years to build out its software portfolio because software generates much fatter profit margins than IBM’s sprawling technology-services business. IBM had been primarily a provider of “middleware,” which connects various kinds of software applications, but its recent push has led the company to expand more into the business of selling applications too.
Steve Mills, head of IBM’s software group, said the Cognos purchase was not prompted by rivals’ deals. “We never do acquisitions on defensive moves or based on what others are doing,” Mills said.
IBM is offering $58 a share for Ottawa-based Cognos, a 9% premium over the U.S.-listed firm’s $52.98 closing price Friday. Cognos was trading in the mid-$40s before SAP’s bid for Business Objects was announced in October, accelerating expectations for consolidation in business intelligence software.
Cognos shares rose $4.17 to $57.15 in afternoon trading Monday. IBM shares rose $1.20 to $101.45.
The biggest previous acquisition by Armonk, N.Y.-based IBM was its $4-billion purchase of the consulting division of PricewaterhouseCoopers in 2002.
Cognos will be added to IBM’s information management software division. Cognos CEO Rob Ashe is expected to remain and report to the group’s head, Ambuj Goyal, after the deal is completed in the first quarter of next year.
Founded in 1969, Cognos has 4,000 employees worldwide and U.S. headquarters in Burlington, Mass. It earned $116 million on $979 million in revenue in its last full fiscal year.
