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IBM lures DemandTec

by Tom Park  |  Published December 9, 2011 at 8:48 AM
cloudwire227x128.jpgIBM Corp. has become the latest software vendor to buy a cloud-based technology provider, announcing on Thursday an agreement to purchase retailing software developer DemandTec Inc. for $440 million, net of cash.

Armonk, N.Y.-based IBM said it would pay $13.20 per share for DemandTec, which places a 57% premium on the target's $8.43 closing price Wednesday. The price also represents a multiple of 5 times DemandTec's estimated 2011 sales.

Brian Marshall, an analyst with ISI Group Inc., described the price as reasonable, especially given the fact that other cloud-based software providers have been acquired for multiples of around 10 times sales.

The news sent DemandTec shares climbing 56% to $13.11 apiece in morning trading.

DemandTec's software, which consists of pricing, promotion and product mix analysis tools, helps retailers identify and respond to customer buying trends. A strategic IBM partner for years, DemandTec helps companies define price points and product mix based upon customer buying patterns, something that has been made more challenging by the broad use of smart phones and social networks.

The market opportunity in what IBM refers to as "smarter commerce" is estimated to be $20 billion in software alone, the company said. IBM in March announced a targeted effort to offer software and consulting services to help companies modernize marketing, customer engagement and sales practices.

San Mateo, Calif.-based DemandTec, which employs about 350 people, has about 450 customers in industries including grocery, consumer electronics, fast food restaurants and health and beauty product manufacturing. The company has struck its own share of acquisitions, announcing earlier this year a deal to buy M-Factor Inc., a developer of software that analyzes and forecasts marketing investments for consumer products companies, for undisclosed terms. In 2009 it paid $13.7 million to buy Connect3 Systems Inc., which helps retailers boost the effectiveness of promotions across various types of media. DemandTec went public in 2007 at $11 per share.

JMP Securities analyst Patrick Walravens on Tuesday predicted that the company was nearing a sale, based on information from an industry source and the fact that DemandTec had canceled an upcoming conference appearance.

The deal also extends IBM's offerings that are available on-demand, or via "the cloud," a method of delivering software that has garnered a good deal of interest from prominent software vendors lately. Earlier this week, cloud-based employee management software provider SuccessFactors Inc. said it would pay $110 million to acquire recruiting software startup Jobs2web, just a few days after the buyer agreed to a $3.4 billion purchase by German business software giant SAP AG. Oracle Corp. in October spent $1.2 billion to purchase cloud-based customer service software vendor RightNow Technologies Inc.

Yet analysts argued that the DemandTec deal was driven more by IBM's desire to boost its commerce analytics software offerings than a wish to increase its cloud expertise.

"Pretty much any software product these days is going to be accessible via the cloud," Stifel Nicolaus & Co. analyst David Grossman said. "I wouldn't say that's IBM's strategy with this deal in and of itself."

That said, IBM, like SAP and Oracle, has realized the importance of being able to offer software via any means demanded by clients, he added.

"This is really the next evolution of the data center," Grossman said. "We're just getting back to the centralized computing model, which IBM pioneered."

The DemandTec deal is set to close early next year. According to documents filed Thursday with the Securities and Exchange Commission, DemandTec under certain circumstances would be required to pay IBM a $14 million termination fee.


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Tags: DemandTec Inc. | IBM Corp. | M&A | retail software | software | technologty

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