INTERNATIONAL Business Machines (IBM) said on Monday it would buy Canada’s Cognos for $5 billion, snapping up the last major independent maker of business intelligence software.
Investors had expected the deal after SAP bid $6.8 billion for Cognos rival Business Objects in October and Oracle bought Hyperion Solutions in April for $3.3 billion.
All three targets make software that combs through vast amounts of data to analyse business trends. For example, Harrah’s Entertainment uses one Cognos programme to keep frequent gamblers coming back to its casinos. Automaker BMW runs a package that creates product quality and human resources reports.
IBM said it signed an agreement to buy Cognos for $58 a share, a 9.5% premium to its Friday closing price of $52.98 on the Nasdaq. IBM expects the deal to close in the first quarter of 2008.
Cognos’ US shares rose to $57.15 in Nasdaq trading on Monday and have gained 27% since the SAP deal for Business Objects on October 7. IBM shares rose as much as 3.5% to $104.19 on the New York Stock Exchange before closing at $101.45.
“This is an effort by IBM to stay relevant in the software space,” said Rebecca Wettemann, an analyst with Nucleus Research.
Oracle, SAP and now IBM are investing in business intelligence software to boost the allure of their product portfolios. Such programs interface with databases sold by Oracle and IBM, as well as business management software from SAP and Oracle.
IBM senior vice president and group executive (software group), Steve Mills said he had been looking for several years to add business intelligence programmes to IBM’s products to offer more real-time and higherperformance analyses.
“We started looking at this set of issues a number of years ago,” Mr Mills told Reuters. “Our actions here were not per se triggered by the fact that other purchases have happened.”
Software is the fastest-growing and most profitable division of IBM, the world’s largest technology services company. IBM also uses software products to get customers to buy its consulting services and hardware.
Cognos, based in Ottawa, has about 4,000 employees and more than 25,000 customers. It is IBM’s 23rd acquisition. Investors have long speculated that the most likely buyer for Cognos was IBM, which has worked with Cognos for more than 15 years. They have integrated some of their technology to serve joint customers, such as the New York City Police, MetLife and Bayer UK.
An FBR Research report said IBM’s offer valued Cognos’ enterprise value — which is market capitalisation plus net debt — at 3.9 times forecast 2008 revenue. That compared to Business Objects’ 3.4 times under the SAP deal, and Hyperion’s 2.8 times multiple in the Oracle deal, FBR said.
“IBM is paying a slight premium to past deals, which we think is appropriate, given the higher-quality company it is buying,” FBR Research said, adding that it did not expect other suitors to step forward.
When asked about IBM’s deal for Cognos, SAP chief executive officer Henning Kagermann said at its investor day in Germany, “I would say it proves that SAP’s acquisition of Business Objects was a strategically important one.” IBM said it plans to integrate Cognos as a group within its Information Management Software division to be led by Cognos president and CEO Rob Ashe