IBM To Acquire Algorithmics For $387 Million

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IBM continued the build-out of its business analytics portfolio Thursday, announcing its second major acquisition in the space in as many days. The company said it reached a deal to buy risk assessment and management software vendor Algorithmics from majority owner Fimalac for $387 million.

On Wednesday, IBM said it had agreed to acquire analytics vendor i2 for an undisclosed sum.

Algorithmics' software is used by banks, insurers, hedge funds, and other financial institutions to quantify risks associated with their lending and investment strategies. The Toronto-based company's roster of bluechip customers includes the Allianz Group, BlueCrest, HSBC, Societe General, and Nomura.

IBM said it plans to integrate Algorithmics' operations into its business analytics and optimization group, which employs more than 8,000 consultants and 200 mathematicians who develop and apply predictive modeling tools for businesses in a number of industries.

Big Blue officials said that, more than ever, financial institutions need the ability to precisely quantify risk.

"Today's economic environment demands that financial institutions have more cash on hand, a better understanding of their financial standing, and the ability to deliver more transparency to stakeholders," said Rob Ashe, general manager for IBM business analytics. "Combining Algorithmics' expertise with IBM's deep analytics portfolio will allow clients to take a more holistic approach to managing risk and responding to economic changes across their enterprises."

Among other things, Algorithmics' software allows customers to conduct real-time Monte Carlo simulations to assess investment risk and exposure to losses. Monte Carlo simulation is a computer-driven process that measures the likelihood of predefined outcomes for key metrics, such as value at risk (VAR), based on internal and external economic and financial variables. Citi Index, a London-based company that facilitates spread betting, last month deployed Algorithmics' Algo Risk Service to measure risk in its trading operations.

The deal for Algorithmics is the latest step in IBM's campaign to bolster its infrastructure offerings with applications and tools that give businesses greater insight into their operations and improve forecasting and planning. Over the past five years, Big Blue has spent $14 billion acquiring business intelligence and analytics software companies to support the initiative.

On Wednesday, IBM announced a deal to acquire i2. The Cambridge, U.K.-based company develops software that helps organizations in the private and public sectors detect fraud, improve loss prevention, and detect security threats by sifting through so-called big data to spot trends in information sources ranging from social media sites to biometric databases. IBM plans to add i2 to its software group.

IBM last year spent $1.7 billion to acquire data warehousing and analytics specialist Netezza, and in 2009 it bought out statistical analysis software developer SPSS for $1.2 billion. In 2008, IBM acquired business intelligence vendor Cognos for $5 billion.

IBM shares were up 0.10%, to $172.09, in morning trading Thursday.

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