Under the deal, IBM will pay about $340 million to buy ILOG. The amount represents a 37% premium over the Nasdaq-listed company's closing share price Friday. ILOG's board of directors said it expects to formally approve the transaction prior to Sept. 15.
The deal also requires a nod from antitrust authorities in the United States and Europe.
IBM said the acquisition will strengthen its portfolio of business process management software. BPM tools allow companies to knit together discrete processes, such as order taking and shipping, to create automated supply and fulfillment chains.
"Companies across all industries are looking for technologies to help them manage their processes with more flexibility so they can keep up with changing business conditions," said Tom Rosamilia, general manager for IBM's WebSphere group, in a statement.
ILOG's customers include blue chippers like American Express, Samsung, GlaxoSmithKline, and MetLife. It maintains operations in Europe, the United States, and Asia.
IBM has partnered with ILOG for the past decade. Increasingly, however, Big Blue is looking to acquire key software partners in order to hasten their product development cycles and time to market.
Absorbing midtier players also lets IBM combine their products with its own in ways that are more seamless than what can be achieved through partnering, said Buell Duncan, general manager for IBM's ISV and developer relations, speaking earlier this year about the company's $5 billion acquisition of Canadian business intelligence software vendor Cognos.
"We can share technology road maps and work more closely day to day to build on each other's strengths," Duncan said. "You can do that if you're one company much more quickly and capably."
IBM has announced 12 acquisitions so far this year.