IBM on Wednesday took one of the most dramatic steps yet in its bid to overhaul its slow-growing services business with a $1.3bn software acquisition.
The all-cash purchase of Internet Security Systems will further erode the barriers between IBM’s services and software divisions.
It reflects an acceleration in Big Blue’s use of acquisitions to raise its profile in some of the fastest-growing segments of the IT market as it battles to revive its flagging growth rate.
ISS, whose software is used to fend off intrusions against corporate and government IT networks, will be run as part of IBM Global Services, even though IBM already sells security software under the Tivoli brand via its separate software division.
Combining ISS with services rather than the software division reflects IBM’s broader plan to use software to revitalise services.
Backed by ISS products, IBM will be better placed to sell “standardised, repeatable, software-based services”, said Val Rahmani, general manager of IBM’s infrastructure management services business, who will oversee the ISS business.
The technology giant set out on its services strategy last year, moving executives to bring a more product-based approach to the services division.
The ISS deal marks the services division’s biggest acquisition since the purchase of the PwC consulting division in 2002.
IBM agreed to pay $28 a share for ISS, an 8 per cent premium to its closing price the day before.
Tom Noonan, chief executive of ISS, said putting his company into the services division echoed a broader trend in the software world. More than half of ISS’s revenues come from subscriptions rather than traditional up-front software licences, he said.
IBM said it would run ISS as a separate unit within its services business and leave its existing management in place. It also said ISS’s product strategy would move “in lock-step” with Tivoli.
It is IBM’s third big software deal in the past three weeks. It agreed to pay $1.6bn for FileNet, which makes content management software, and $740m for MRO Software, whose technology is used to track and manage corporate assets.
The deals partly mark IBM’s attempt to counter a slowdown in technology spending by corporate and government buyers.