Brad Feld

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The IBM Software Deal Machine Continues Onward

Aug 10, 2006

There’s been a lot of talk about Oracle being the major consolidator of mature software companies, but IBM continues to march forward aggressively.  They bought FileNet today for $1.6 billion and MRO Software a week ago for $740 million.  While – according to the Wall Street Journal – IBM has acquired 56 software companies since 1995, FileNet is the fourth largest after PWC Consulting ($4 billion), Lotus ($3.5 billion), and Rational ($2.1 billion). 

Historically, IBM has been a small to medium sized acquirer – many of their acquisitions are between $25m and $200m.  FileNet and MRO are chunky ones and help continue to build scale in the $17 billion plus (probably over $20 billion now) IBM Software division.

In the past few years IBM has acquired two companies that I was on the board of – Cyanea and DataPower.  Both companies were growing quickly pre-acquisition and doing great in their respective markets. IBM paid a nice price for each of them and – based on what I’ve been able to gather – is seeing a significant ROI on their purchases as they push the companies’ products through IBM’s massive sales and marketing machine.  This is both great for IBM and great for entrepreneurs as IBM will presumably be willing to continue to be an acquirer of strong, high growth software companies.

Cliff Reeves – currently at Microsoft – but also an alumni of both IBM and Lotus – had some good thoughts on the deal.  In my dealings with IBM, I’ve found them to be a deliberate and thoughtful acquirer – I expect IBM Software will continue to grow effectively through acquisition for the foreseeable future.