A longtime serial acquirer of bite-size companies, IBM's humbler acquisition habits have been overshadowed in recent years by splashier dealmakers such as Hewlett-Packard Corp., which for years forked out big bucks for megadeals, and hot tech companies such as Google Inc., which has been devouring smart new tech companies at a voracious pace. Google, which was a close runner-up for this year's award in technology, has snagged some 86 deals to IBM's 72 from 2007 through 2011, according to Dealogic data, the five-year period covered by the award. Google has also won respect for its knack at nabbing attractive deals under corporate development leaders such as David Lawee, who told The Daily Deal last year: "I have never seen as many explosive areas of growth in the digital economy as today, and I've been working in this space since 1994. It's never been a more exciting time."
In contrast, IBM's style is much lower keyed. It has largely achieved its success by focusing patiently on smaller companies, in many cases building relationships before buying them. Investors have been happy to embrace IBM's predictable ways because the company keeps delivering on its growth and M&A targets year after year. "It's the same old IBM. If you go back to when they gave guidance in 2005 for the next several years, they said they would get there and they did. They're one of the best-managed companies," said Eyal Ofir, an analyst with Canaccord Genuity.
IBM has also benefited tremendously from its early move to exit the hardware businesses with low profit margins including personal computers and disk drives, and to shift to more lucrative, faster-growing activities such as software and services.
Not every deal at IBM is tiny, except compared to the company's great size. IBM has spent billions of dollars on analytics deals, for instance, which make up some of the largest transactions it has struck in the past four years. They include the $4.8 billion purchase, IBM's biggest ever, of business intelligence software developer Cognos Inc. in 2007, the $1.3 billion purchase of analytics giant SPSS Inc. in 2009 and its $1.7 billion purchase of Netezza Corp. in late 2010. The company makes easy-to-install appliances that run high-speed, high-performance business analytics queries far faster than comparable technology.
IBM's machine-like efficiency in dealmaking dates back to the days of David Johnson, who was with IBM for 27 years and spent the last eight of those years running global M&A, until he jumped ship to rival Dell Inc. in 2009. Indicating just how integral IBM thought Johnson had become to its M&A strategy, the company sued him after he left, claiming he violated an agreement restricting his right to work with rivals.
But if Johnson's style at Dell is any indication of the legacy he left at IBM, then IBM probably had a pretty comprehensive M&A manual to work with. Within the first 18 or so months of joining Dell, Johnson had already written a playbook running more than 1,000 pages.
When Johnson left, IBM named Elias Mendoza, who had been with the company only since 2006, to head M&A. Mendoza departed not long after in June 2011 to join New York-based investment banking boutique Union Square Advisors LLC as a partner. IBM then tapped Kevin Reardon, an IBM veteran of over 20 years who had been general manager of intellectual property, an intensely competitive arena of late, for the job. IBM did not officially announce Reardon's installment in his new role and did not make the M&A chief available. (Interestingly, according to Songwriter Nation Magazine's March/April 2012 issue, Reardon has also developed a successful side career as a country songwriter and in September 2011 won a "Best Song of the Month" contest for a song he co-wrote, "Let's Try It.")
The title may be especially fitting for Reardon's latest hit in the deal world -- the $1.36 billion purchase of Web-based human resource management software and related services Kenexa Inc., which came at a 42% premium to the target's Aug. 26 close. Burkett said the deal was "potentially a red flag" because it may signal that IBM will start moving more aggressively into Web-based application software. "This entire space is probably going to get increasingly competitive. The deal signals that IBM recognizes there's a fundamental change in the marketplace that could represent headwinds in its core businesses," he said. "These shifts are causing increasing levels of competition."
IBM certainly has some bucks to spend. In 2010, the company committed to spending $20 billion on acquisitions by 2015. So far it's spent roughly $6.2 billion on announced deals, though there are numerous deals that have been done for undisclosed terms -- usually an indication that the size is relatively small. The rough tally suggests that IBM has some sizable pocket change to spend over the next three years.
Many are well aware that frenzied competition has been a big stumbling block for other big-tech luminaries in the past. All the more reason, then, that the markets will be watching closely to see how well Big Blue keeps its spending cool as competition heats up around it.
Cleary Gottlieb Steen & Hamilton LLP adds Bernd Langeheine, former deputy director general for mergers of the European Commission's Directorate General for Competition. For other updates launch today's Movers & shakers slideshow.
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