IBM Bids $1.7 Billion for Business Analytics Company

Vendor offers Netezza $27 per share in cash to expand business intelligence capabilities.

September 22, 2010

D.H. Kass

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IBM Corp. said that it has offered $27 per share in cash, or $1.7 billion, to acquire the outstanding shares of Netezza Corp., a publicly-held maker of data warehousing appliances based in Marlborough, MA, marking the vendor’s 24th analytics-related acquisition totaling nearly $14 billion in the past four years.

The transaction further underscores IBM’s strategy to corral the business intelligence market and, indeed, the company said that its second quarter 2010 business analytics revenue grew by some 14 percent.

The parties said that they expect the transaction to close in the fourth quarter of this year, at which time Netezza will become a wholly owned subsidiary of IBM. Netezza currently employs some 500 people.

Netezza’s shares close Monday at $28.27, a $.59 bump from the stock’s opening price of $27.68 and just slightly off its 52-week high of $28.59.

According to a Securities and Exchange Commission (SEC) 10-Q filed by Netezza on September 9, 2010, for the three months ended July 31, 2010, the company posted $63.8 million in revenue and $3.2 million in earnings compared to the $43.9 million in sales and $730,000 in net income it recorded during the same period last year.

For the first six half of this year, Netezza reported $121.9 million in sales and $5.9 million in net earnings compared to the $89.3 million in revenue and $493,000 in net income it recorded during the similar period last year, documents show.

Should the deal not conclude as detailed in the companies’ merger agreement, Netezza has agreed to pay IBM a $56 million termination fee, according to a Netezza 8-K filing dated September 20, 2010.

As recorded in the 8-K filing, certain Netezza executive officers have signed employment offers with IBM, including James Baum, president and chief executive; David Flaxman, senior vice president, products and technology; Patrick Scannell, Jr., senior vice president, chief financial officer, treasurer; Ray Tacoma, senior vice president, worldwide sales; and, Patricia Cotter, senior vice president, operations.

As of September 16, 2010, Netezza's directors and executive officers owned about 3.9 million shares of Netezza common stock, or 5.9 percent of the company’s outstanding shares, according to the 8-K document.

Deal important to IBM’s growing analytics business

IBM officials touted the positive impact of the transaction on its analytics business.

"IBM is bringing analytics to the masses,” said Steve Mills, IBM Software and Systems senior vice president and group executive.

“We continue to evolve our capabilities for systems integration, bringing together optimized hardware and software, in response to increasing demand for technology that delivers true business value,” he said. “Netezza is a perfect example of this approach."

IBM and Netezza said that they have worked together for a number of years on systems and solutions to analyze huge amounts of complex data.

"Netezza strongly complements our business analytics capabilities and client base,” Mills said. “Together, we have the opportunity to quickly leverage the technology and accelerate the offering."

The segment once was defined by software that sifted large storehouses of information for relevant customer and market data but now is expanding to include hardware, with the combination of the two producing meaningful insights far quicker.

Accordingly, Netezza caught IBM’s eye for its family of data warehousing appliances that can handle complex data analysis from 10 to 100 times faster than traditional systems, officials said.

The company’s 350 clients range across industries and include eHarmony, Neiman Marcus, Time Warner, Estee Lauder, Blue Cross Blue Shield of Massachusetts, United HealthGroup, Nationwide Insurance, Sapporo, NYSE Euronext and Virgin Media.

“Joining forces with IBM will allow us to reach new markets, new industries, new customers that previously we at Netezza could not even dream of reaching,” said Baum.

IBM said that the Netezza acquisition widens its information and analytics offerings, including services available through its Business Analytics and Optimization Consulting organization, which houses some 6,000 analytics consultants, 2,000 of which it hired in the first six months of this year.

“The news further accelerates IBM’s information and analytics to bring the power of analytics directly to the hands of business users within every department of an organization,” said Arvind Krishna, IBM Software Group, General Manager, Information Management.

IBM pointed to Netezza customers such as the exchange group NYSE Euronext, which it said has cut the time to load and extract huge amounts of historical data to allow it to run queries more safely and efficiently, and Virgin Media, a UK-based provider of broadband, telephone, mobile services, and television, which uses the Netezza technology in product marketing, revenue assurance and credit services.

TAGS: IBM,business intelligence,business analytics,Netezza,data warehousing

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