IBM to Buy Varicent Software

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In a bid to strengthen its business analytics portfolio, International Business Machines Corp (IBM) has agreed to acquire analytics software provider Varicent Software Incorporated. However, the financial terms of the deal were not disclosed.

Based in Toronto, Canada, Varicent Software is a privately-held company and has more than 180 clients. The company’s offering is used for measuring and analyzing data from various business departments – including finance and sales, human resources and IT departments – for providing compensation and improvement in sales performance. Varicent’s clients include Starwood Hotels & Resorts Worldwide Inc. (HOT), Covidien, Dex One Corp , Manpower Group (MAN), Hertz Global Holdings Inc. (HTZ), Office Depot Inc. (ODP) and Farmers.

IBM has made a number of strategic acquisitions to boost its Smarter Analytics portfolio that includes Algorithmics, Clarity Systems, and Open Pages. With the proposed acquisition of Varicent Software, which is expected to close in the second quarter of this year, IBM will be well positioned to achieve its 2015 revenue goal of $16 billion from the business analytics division.

The strong growth of analytics can be attributable to the increasing complexity that the enterprises are facing in the decision-making process. According to market research firm Gartner, analytics is expected to be one of the top-most strategic technologies for 2012. The research firm believes that the scope of analytics will expand manifold over the next few years, and will be a must for enterprises. We believe that IBM remains well positioned to grab this opportunity going forward.

IBM expects to achieve strong growth based on accretive acquisitions. Since 2005, the company has invested $14.0 billion in acquiring 25 companies. The company has engaged more than 10,000 technical professionals and 7,500 consultants in its analytics operations. IBM has 8 analytics solutions centers across the world and has more than 100 analytics-based research assets.

Strategic acquisitions in the field of computing and business analytics are likely to help the company grow in the long term. With a strong balance and robust cash flow, IBM has the option to look out for firms with high intellectual properties that in turn will help the company to stay ahead of its peers and drive both the top-line and bottom-line. 

We have a long-term Neutral recommendation on IBM and are optimistic about its strong fundamentals and robust growth prospects going forward.

However, IBM continues to face stiff competition from a number of companies, including Hewlett Packard Co. (HPQ), Microsoft Corp. (MSFT), Oracle Corp. (ORCL) and EMC Corp. (EMC).

Currently, IBM has a Zacks #3 Rank, which implies a short-term Hold rating.

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