IBM Corp is making its largest acquisition ever, a deal announced on Monday to buy Cognos Inc for US$5 billion in cash in hopes of keeping up with rivals in "business intelligence" software.
The acquisition would follow similar moves in the same market this year. SAP AG recently linked up with Business Objects SA for US$7 billion and Oracle Corp grabbed Hyperion Solutions Corp for US$3.3 billion. Cognos shares had soared recently on expectations that it, too, would be acquired. They leaped another 8 percent on Monday's news.
Business intelligence software helps big organizations gather data in "dashboards" that can be used to model such things as the financial impact of staffing changes or marketing moves.
Because that capability meshes with other things business software does, big vendors like SAP, Oracle and IBM have moved to include business intelligence applications in their product packages.
But their challenge will be to technically integrate business intelligence offerings 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 will happen with IBM and Cognos.
"I'm not sure it will become more than a bolt-on," he said.
Forrester Research's Paul Hamerman 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 as well.
Steve Mills, the head of IBM's software group, said acquiring Cognos was not prompted by rival deals.
"We never do acquisitions on defensive moves or based on what others are doing," Mills said in an interview.
IBM is offering US$58 per share for Ottawa-based Cognos, a 9 percent premium over the company's US$52.98 closing price on Friday.