IBM to focus M&A efforts on as-a-service space; eyeing more partnerships
International Business Machines (NYSE:IBM) will concentrate its acquisition search on as-a-service and partnership opportunities, according to CFO Martin Schroeter.
On the 4Q14 earnings call held 20 January, Barclays analyst Ben Reitzes asked about M&A plans for 2015. Schroeter said the company had typically acquired assets to complement and build on its internal innovations around future Enterprise IT. He noted that it had been aggressive in its approach to M&A, citing the purchase of SoftLayer Technologies as an example.
“Now I do think that we see two differences as we move into the future on our acquisition policy or our acquisition approach,” the CFO said. “One is, more of our acquisitions will probably be on an as-a-service basis as opposed to, say, an on-premise model. And that's kind of the nature of the market and that's also where we have a lot of opportunity because we don't really play in some of those areas today.”
Schroeter said although IBM has more than a hundred as-a-service offerings, it saw a lot of opportunities to expand in the space.
“And then secondly we've been more active and been very successful in partnering with leading companies in order to help transform industries and in order to help transform professions,” he added.
The CFO said the company had been working with companies including Apple and Twitter, noting that while these partnerships required a lot of investment, IBM did not have to own all the technology in order to provide new offerings to its clients.
“So you'll see also more partnerships, if you will, as opposed to acquisitions. But from an acquisition standpoint, more as-a-service I would think as opposed to on-prem(ise),” he concluded.
The company announced in June 2013 its purchase of SoftLayer, a Dallas, Texas-based cloud computing infrastructure provider, for USD 2bn.
IBM has been suggested by this news service as a potential bidder for numerous targets in recent times, including Vancouver-based real-time analytics provider Bit Stew Systems; California-based video surveillance and security software company 3VR Security; and Attunity (NASDAQ:ATTU), a data management and analytics business based in Massachusetts and Israel.
During his prepared remarks on Tuesday’s call, the CFO noted that IBM had sold a number of large businesses in 2014 that did not fit its strategic profile, including its x86 server and customer care service operations, and announced the sale of its semiconductor manufacturing business. Schroeter added that despite generating USD 7bn of revenue in 2013, these businesses had lost around USD 500m of pre-tax profit.
IBM said it would sell its semiconductor manufacturing unit in October for an undisclosed sum. The sale of its x86 server business was completed in September for USD 2.1bn, while the disposal of its customer care operation closed in January last year for around USD 500m.
IBM has been a prolific acquirer in the past half-decade, with the majority of targets based in North America or Europe.
The company's most consistent advisory relationship has been with Cravath, Swaine & Moore, which has been used for multiple acquisitions and disposals, according to the Mergermarket M&A database. Financial advisors used on sizeable deals during the past few years include Citi and Deutsche Bank, with the latter used for SoftLayer. Goldman Sachs was used for the sale of the semiconductor manufacturing business.
On the call, IBM reported a cash balance of USD 8.5bn at year end, while total debt stood at USD 40.8bn. The company has a market capitalization of USD 150.5bn.