IBM’s Software Acquisition Strategy in Massachusetts (Plus Tips on Getting Acquired) From VP Mike Loria

9/20/10Follow @gthuang

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comfortable there, and its existing resources and connections make it easier to pursue more deals. As for why IBM hasn’t made as many acquisitions in Silicon Valley or the Pacific Northwest, it’s hard to say—but perhaps more companies in the Northeast are focused on the kinds of business customers that IBM has.

In any case, the impact of all these acquisitions on the company’s business has been great. IBM estimates that its mergers since 2003—about 100 worldwide, not just in Massachusetts, and not just software—have led to company growth that will propel its earnings per share to $10 to $11 by year-end 2010. The acquisitions have also added some 44,000 employees to the company’s overall roster. IBM didn’t break out any specific numbers for Massachusetts, though it’s safe to say the firm has invested somewhere in the neighborhood of $10 billion in software company acquisitions in the state since 2003.

Loria singles out Watchfire (2007) and Ounce Labs (2009) as Boston-area acquisitions that helped IBM enter the field of Web application security. Watchfire allowed customers to find vulnerabilities in their applications, while Ounce Labs provided a more technical tool to pinpoint those problems in the source code. Both firms had “triple-digit growth in their businesses” after becoming part of IBM, Loria says.

And Watchfire is a classic example of how IBM operates. Loria’s team saw a trend in the software marketplace—lots of anxiety around security vulnerabilities and hackers finding points of entry through Web applications. “We wanted to enter it quickly,” he says. “Watchfire was a partner of ours. We like to acquire a market leader. Integration was easy.”

That speaks to the key factor in IBM’s acquisition strategy: it tends to acquire existing partners that are already driving business. So, having worked together is more important than cultural fit, strong management team, and other platitudes (which are pretty much givens anyway). “It really is, what is the value proposition for our customers?” Loria says. “It sounds like motherhood and apple pie, but it is about how does IBM better serve customers. If we are starting to jointly win deals…or they’re going in to our big customers, and customers love it, they become prime candidates for an acquisition.”

Many companies pitch him on buying them before they’ve formed any … Next Page »

Gregory T. Huang is Xconomy's Deputy Editor, National IT Editor, and the Editor of Xconomy Boston. You can e-mail him at gthuang@xconomy.com or call him at 617-252-7323. Follow @gthuang

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