IBM Roadmap Earmarks $20 Billion For Acquisitions

At IBM’s annual investor briefing in New York Wednesday, president and CEO Sam Palmisano presented a five-year roadmap that includes around $20 billion earmarked for acquisitions through 2015. These acquisitions will support strong expected growth in the business analytics and optimization segment.

IBM’s recent investments have been concentrated in business analytics and optimization, and the largest of these deals was IBM’s 2007 acquisition of BI and performance management solution provider Cognos for $5 billion. “Cognos, which was our largest acquisition ever, posted strong double-digit growth and gained share, providing a proof point on analytics demand in the market,” said Mark Loughridge, IBM’s Senior Vice President and Chief Financial Officer at IBM’s first-quarter earnings presentation in April.

Since 2002 when Palmisano became CEO, IBM has acquired 70 companies for about $14 billion, according to a presentation by Loughridge. These acquisitions have generated aggregate compound revenue growth of 16 percent, he wrote.

In total, within the business analytics and optimization (BAO) segment, IBM has invested $11 billion acquiring 18 companies since 2005, according to a presentation from Steve Mills, SVP and group executive, IBM Software Group.

Last year, BAO represented a $140 billion market opportunity, or 18 percent of the total IT market, according to an April IBM Market Insights report referenced in the investor presentation. This segment is projected to grow to $205 billion by 2015, led by strength in the services business. IBM earned $9 billion in BAO revenue in 2009, and projects growth to $16 billion in revenues in 2015, for an expected 7.8 percent share of the market, up from the current level of 6.4 percent. IBM will also invest in high-growth segments within the middleware category, including business process management, information integration, master data management, business analytics, and enterprise content management, according to Mills’ presentation.

Overall, the software group is positioned to contribute 49 percent of IBM’s profit by 2015, Mills wrote.

In the presentation, IBM provided two BAO customer references, both based on IBM Cognos 8 BI. Alameda County Social Services Agency integrated county data from six disparate state and county systems into a single data warehouse, allowing investigators to access real-time client and family views in one minute instead of five months. Also, consumer foods product company Warabeya Nichiyo Co, Ltd implemented a complete production planning and business management system allowing the firm to compare daily operations between its factories.