IBM Acquires OpenPages - Analyst Blog

International Business Machines Corp. (IBM) continued its acquisition spree, with the latest candidate being privately held software company OpenPages. Terms of the deal were not disclosed.
 
Based in Waltham, Massachusetts, OpenPages develops risk and compliance management software. According to IBM management, the deal will expand its business analytics division. Since May 2010, IBM has acquired two analytics company, OpenPages being the second one. It had previously acquired Sterling Commerce (analytics division) from AT&T Inc. (T) in August 2010.
 
Recently, IBM acquired marketing services company Unica Corp. (UNCA) for a whopping $480.0 million, which is expected to provide a fillip to IBM's software business, its most profitable division. Including OpenPages, IBM has acquired five companies from different sectors since May 2010.
 
Risk management has gained massive importance in the corporate world. In the present scenario, both large enterprises as well as small and medium sized businesses (SMB) are adopting a risk-based approach in conducting their businesses. A risk-based approach enables top-down prioritization, allowing companies to focus on their top-most priority and avoid or minimize unexpected outcomes while improving performance.
 
We anticipate that the OpenPages acquisition will broaden IBM's customer base in the risk management market.
 
OpenPages' clientele includes big shots such as Barclays, Allianze, British Petroleum, Duke Energy Corp. (DUK), H&R Block Inc. (HRB), Vodafone Group Plc (VOD), Altria Group Inc. (MO) and many more. OpenPages solutions have helped its clients in developing strategies for operational risk, financial controls management, compliance and internal audits.
 
Currently, IBM has not divulged any specific plan to integrate OpenPages into its business operations, implying that it will operate on its own for the time being. However, in the long term, we believe IBM will integrate OpenPages in its WebSphere application server and Tivoli software line.
 
In our opinion, this is an important acquisition for IBM, considering that it enables IBM to significantly penetrate and improve its competitiveness in the governance risk and compliance market (GRC).
 
OpenPages directly competes with Archer Technologies, which was acquired by EMC Corp. (EMC) in January, 2010. Another competitor Paisley was acquired in 2008 by Thompson Reuters Corp. (TRI).
 
GRC market is a fragmented market, with many small vendors. We believe large enterprises such as SAP AG (SAP), Oracle Corp. (ORCL) and Hewlett Packard Co. (HPQ) that are direct competitors of IBM in most of the markets will also follow its footsteps and make similar acquisitions going forward. This may hurt IBM's market share over the long term.
 
Since 2005, IBM has invested $10.0 billion in 14 strategic acquisitions (including Cognos in 2007 and SPSS in 2008) to build its business analytics portfolio, as well as developing seven business analytics centers of excellence, which generated 9% of revenue growth in fiscal 2009. Currently, IBM holds 14.5% share of the market, following SAS Institute Inc.'s 33% share.
 
IBM continues to proceed with its strategy of accretive acquisitions that can be easily integrated into its current business. IBM plans to spend approximately $20.0 billion in acquisitions over the next 5 years.
 
We anticipate that IBM will continue to acquire companies with a higher intellectual property, particularly in the software arena going forward.
 
IBM faces stiff competition from Hewlett Packard, Accenture Plc (ACN), Oracle Corporation, VMware Inc. (VMW), Google Inc. (GOOG) and Microsoft Corporation (MSFT) in most of its markets. We maintain a Neutral rating on a long-term basis (6-12 months).
 
IBM has a Zacks Rank of 3, which implies a Hold rating on a short-term basis (1-3 months). 

 
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