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IBM Corp said on Monday it would buy data analytics company Netezza Corp for $1.7 billion to expand its technology services business and help clients better analyze market information.

IBM is shifting its focus from increasingly commoditized computer hardware to higher-margin software and services, particularly analytics, which help clients analyze market data to plot trends or prevent fraud.

The deal values Netezza at $27 per share, a 9.8 percent premium from Friday’s closing price of $24.60.

The stock rose 12.8 percent to $27.76 by midday, with some analysts saying a rival bidder could emerge considering the recent surge in technology acquisitions.

Marlborough, Massachusetts-based Netezza sells appliances that combine analytical software and hardware to clients such as online dating site eHarmony and financial exchange operator NYSE Euronext.

For example, Netezza’s technology helps eHarmony comb through massive data from user profiles and Web traffic to figure out who might be a good match for a particular user.

IBM said the speed of Netezza’s technology had convinced it to buy the company. The two are currently partners, with Netezza using IBM hardware.

“Speed is critical,” said Arvind Krishna, general manager of information management at IBM. “Clients don’t have the patience to wait for weeks.”

He said analytics, which accounted for about $9 billion of IBM’s $95.76 billion in revenue last year, was a significant growth opportunity for the company.

IBM said in May that it planned to spend about $20 billion in acquisitions through 2015 to expand its software and services business.

IBM’s top rivals include Hewlett-Packard Co, Oracle Corp and Cisco Systems Inc, all of which have announced new services and acquisitions in an effort to offer a broader set of technology services to clients.

IBM employs 6,000 analytics consultants. Netezza has 500 employees.

The companies said they expected the deal to close in the fourth quarter. The merger agreement includes a termination fee of $56 million, according to a regulatory filing.


The deal also comes amid a resurgence in mergers and acquisitions activity. Last month saw an unseasonable burst of deal making, with Thomson Reuters data showing announced deals totaled $262 billion, the highest for an August since 1999.

Analysts have said this could continue, helped by low interest rates, record cash holdings and low stock market values.

Another trend driving deals in technology is the ambition among large vendors to become one-stop shops selling everything from networking and servers to software and services.

Monday’s deal also showed data analytics was becoming a hot area, analysts said, adding that other targets could include Teradata Corp and smaller, privately owned companies such as Paraccel and Vertica. Teradata shares were up 7.5 percent at $37.06.

Given the heated bidding war between HP and Dell Inc over data storage company 3PAR Inc, they said, a rival bid could emerge for Netezza as well.

“As such, we recommend investors to keep their position rather than sell with the idea that another bidder may appear,” said Roth Capital Partners analyst Nathan Schneiderman.

Jayson Noland, an analyst at Robert W. Baird, said companies such as Dell, HP, NEC Corp and SAP AG could be interested, although they may have already discussed a possible deal with bankers and decided not to make a move.

Netezza, which also makes data warehouse and monitoring equipment, reported fiscal second-quarter revenue of $63.8 million last month, up 45 percent from a year earlier. It also raised its full-year revenue forecast, a rare occurrence in a sector fretting about a possible double-dip in technology spending.

Many of IBM’s recent acquisitions have been small, low-key deals. Chief Executive Samuel Palmisano said last week that IBM buys companies at “reasonable valuations” and criticized HP’s recent deals to buy data storage company 3Par for $2.4 billion and security technology company ArcSight Inc for $1.5 billion.

IBM’s offer for Netezza values it at over six times its expected revenue for 2010, but HP’s offer for 3PAR valued the company at over nine times revenue.

IBM shares were up 1 percent at $131.49.

(Reporting by Ritsuko Ando; additional reporting by Liana B. Baker; editing by Lisa Von Ahn and Andre Grenon)

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