IBM on Thursday said it would buy Algorithmics, a Canadian risk analysis group, in a $387m deal, laying the ground for a new push into assessing risk on behalf of financial services companies.
The acquisition of the Toronto-based company comes a day after the US business and software services group announced a deal to buy the UK’s i2, which provides pattern recognition software for police forces and the military.
The deal comes as the industry adapts to a swath of new regulations in the Dodd-Frank act passed in wake of the financial crisis that will require them to hold more data, have better risk management systems and conduct more rapid collateral and margin calculations. Algorithmics provides software to fund managers and banks to help them analyse the risk they are exposed to by fluctuating market prices.
Owing to concerns over data security, banks and insurance companies have traditionally conducted these operations in-house. However, costs are running so high and IT operations becoming so complex, many are considering using technology specialists for specific parts of their business. As a result, many of Silicon Valley’s biggest names are looking at deepening their involvement in the financial services industry.
The 900 employees of Algorithmics are to become part of IBM’s 8,000-employee business analysis and optimisation division. The company has spent more than $14bn in the past five years on acquisitions to expand this unit, including the acquisition of OpenPages, another risk management software provider, last year.
IBM aims for the analytics business to grow from a current $10bn in annual sales to $16bn by 2015.
“We have acquired consistently around the themes of analytics, it is a very important growth area for the company,” said Rob Ashe, general manager for business analytics at IBM. “We are likely to do more acquisitions in this area.”
IBM’s analytics deals come in the wake of HP’s $11bn purchase of Autonomy, the UK search software company last month. HP, too, is positioning itself to help companies make sense of the deluge of “big data”, and plans to make Autonomy the cornerstone for the strategy.
“Coupled with HP’s recently announced acquisition of Autonomy, this underlines the importance of analysing both structured and unstructured information to create business insights, as being the next battleground for the major enterprise software vendors,” said Tim Jennings, analyst at Ovum.
Algorithmics is a member of the Fitch group, which is majority-owned by Fimalac, a holding company based in France. The Fitch group provides a number of financial services, including credit ratings from Fitch Ratings.