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IBM acquires Internet Security Systems

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August 24, 2006

IBM announced yesterday it will pay US $1.3 billion to acquire security company Internet Security Systems (ISS). The transaction, which values ISS at about $28 per share in cash (an 8 percent premium over Tuesday's closing price) offers IBM access to that company's Internet security software, appliances and monitoring services. IBM hopes the deal will beef up Big Blue's managed security services division.

ISS security products are used to protect desktop computers, entire corporate networks or simply individual PCs. They include software, hardware and outsourced-style monitoring to service customers, including large corporations and government agencies.

With ISS under our belt, IBM noted, it will be able to offer a full array of security and compliance products and services.

"Companies realize that rapidly evolving security threats and complex regulatory requirements such as SOX have turned security into a mission-critical priority," said Val Rahmani, IBM's general manager for Infrastructure Management Services unit.

Rahmani added "ISS is a strategic and valuable addition to IBM's portfolio of technology and services."

IBM's recent acquisition spree seems based on the idea that smaller technology firms can be had at relatively low prices and, when added to its existing menu of products, drive revenue gains for the company. It has seen growth in its services unit slow, while software is once again becoming a key driver of profits and sales.

ISS shares rose more than 7 percent on news of the deal, with shares of IBM slipping less than 1 percent in midday trading Wednesday to $78.49.

With ISS, IBM hopes to convince customers to change how they secure data, moving away from addressing specific threats toward creating more secure network settings from the ground up. The software assets will be integrated into IBM's rapidly expanding Tivoli business unit, while the monitoring services will be folded into the services sector.

Being part of the IBM family will enable ISS to reach a much broader audience around the world, commented ISS CEO Tom Noonan. The company already has about 11,000 customers, including 17 major banks and 15 international governments.

A big prize in the buy is ISS' X-Force security intelligence service, which is recognized as a top venue for research and analysis of data security threats. The research arm of ISS feeds its findings back into the products and services areas, with a goal of staying ahead of even rapidly emerging threats.

ISS is the second-largest in a recent batch of acquisitions for IBM, behind the $1.6 billion purchase of FileNet, a software firm it acquired to improve its offerings in the data storage and management area. A few weeks earlier, it bought MRO Software for around $740 million in cash, bulking up its IT asset management portfolio. It also bought privately held Webify Solutions for an undisclosed sum.

IBM is moving to expand its software offerings at a time when its once red-hot services business has cooled considerably, said ThinkEquity Partners analyst Eric Ross. "This is a deal that could help both software and services. The focus of the recent buying has been and will likely continue to be in software."

Indeed, taken along with last year's sale of the company's PC unit, the recent buying spree is part of a major revamp for IBM, which has also implemented targeted job cuts in some regions.

Some of those purchases may be more challenging to integrate smoothly into the massive company, which has a corporate culture that is the stuff of tech legends, said Gartner analyst Mark Gilbert.

While ISS seems like a logical fit, the simultaneous integration of it and the other buys across multiple business units could be a stumbling block. "There are overlapping products," and there is potential for customer confusion in some cases as well, he said.

Source: IT World Canada


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