When Big Blue Goes Shopping

By Jim Kerstetter Four years ago, IBM (IBM) acquired half of what used to be a well-known database software outfit, Informix. On Mar. 14, Big Blue completed the buy, purchasing the other half for $1.1 billion in cash.

What remains of Informix, which for years fought a losing battle for the database market with Silicon Valley software giant Oracle (ORCL), is called Ascential Software (ASCL). It has more than 3,000 customers and specializes in software that allows computers to read different sorts of data seamlessly. Big retail outlets use Ascential's product for such tasks as combining Internet and catalog information in order to adjust inventories.

KEEN EYE. With the proposed Ascential deal, IBM is proving once again that few can match its acumen for big acquisitions. Ascential makes an ideal IBM target. It has around 900 employees, and revenues last year amounted to $271.9 million, up 46% from the year before. What's more, Big Blue has been a reseller of Ascential's technology for nearly a decade, has 550 joint customers with the Westborough (Mass.) outfit, and accounted for about 10% of Ascential's revenue last year.

Such familiarity means a lot in the software industry, where any sort of merger-and-acquisition activity can pose a challenge if the technology or cultures clash. "They minimize the risk by selecting those acquisitions very carefully," says Philip Russom, principal analyst at Forrester Research.

Also, like nearly every other IBM software acquisition, Ascential makes infrastructure software, not corporate financial systems like Oracle or SAP (SAP). It sticks to the techie guts of a corporate computer network -- exactly where IBM likes to go. Yet Ascential's technology still fills a hole in IBM's product line.

While IBM has possessed so-called data integration technology for some time, it hasn't experienced much success. Ascential should change that and become another nice addition to IBM's software business, which, just five years ago, many considered an also-ran.

IS INFORMATICA NEXT? Over the last 10 years, IBM has acquired 41 software companies. They range from the high profile, like the $3.5 billion takeover of Lotus Development in 1995 and the $1 billion acquisition of Informix, to the purchase of dozens of little outfits few have heard of. Nearly all have had a few things in common: customers shared with IBM and technology compatible with what IBM already has, and technology on which the consultants of IBM's massive Global Services already have training.

So what does this mean for the software industry? More consolidation. "I think IBM and Oracle and SAP and probably Microsoft (MSFT) are rushing toward what they see as the remaining bright spots" in software, says Dana Gardner, a senior analyst at Yankee Group. And in this year of seemingly rapid consolidation in the software industry, it looks like IBM has made a smart play.

With Ascential under IBM's wing, Informatica (INFA) remains the only large, independent company that specializes in data-integration technology. No surprise that the Redwood City (Calif.) company's stock increased 4.66%, to $7.64, on Mar. 14. Ascential shares rose 16.4%, closing at $18.29. IBM rose 43 cents, to $91.90, on news of the acquisition.

Is Informatica in play? Whether executives there like it or not, you can count on it. Someone is sure to take a page from IBM's playbook. Kerstetter is Technology editor for BusinessWeek Online in Silicon Valley

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