IBM will pay $1.6 billion, or $35 per share, to acquire Costa Mesa, Calif.-based FileNet, one of the largest vendors in the enterprise content management (ECM) market.
The acquisition is intended to bolster Big Blue's "information on demand" initiative, launched earlier this year and backed by approximately $1 billion in IBM R&D investments. IBM aims to integrate FileNet's ECM suite with its business process management (BPM) and service-oriented architecture (SOA) technologies. The move supports a 2005 prediction by Gartner Inc. that ECM vendors will pursue acquisitions to round out their technology suites, but this acquisition may be more about market share than technology, according to Jim Murphy, research director with Boston-based AMR Research Inc.
"FileNet essentially doesn't have anything that IBM doesn't have -- except for customers," Murphy said. "It's primarily a competitive acquisition of FileNet's customers, many of [which] are very lucrative companies to work in and to be an IT provider for. [FileNet's customers] are document-centric businesses -- insurance, healthcare, telecom and banking. This acquisition is basically one of the top four vendors in the market buying another top vendor."
FileNet, founded in 1982, now has 4,300 customers, including more than 75 of the companies on the Fortune 100 list, according to an IBM press release. IBM intends to "preserve and enhance" customer investments in both FileNet and its existing content management platform, stressed Ambuj Goyal, general manager of IBM's Information Management Unit, during the media call. That's probably true, Murphy said.
"The issue with the overlap is that it would probably be hard to migrate from one system to another," Murphy said. "I don't think it behooves IBM at this point to rip and replace these customers. That would be nothing but cost. They'll probably try to maintain both product lines for the foreseeable future."
As for the vision of integrating ECM with IBM's SOA platform, the fundamental premise of SOA means that theoretically it would be straightforward, Murphy said. As long as FileNet conforms to current SOA standards, its content management services could be offered up as Web services, with little additional coding or integration required. But the BPM issue is a little stickier. Murphy believes that because both IBM and FileNet have developed document-centric BPM, as opposed to back-end transactional BPM, customers will be under some pressure as to which BPM technology to use.
FileNet's customers may want to hold their bets for now, he added.
The deal's pricing drew some attention from investors as FileNet's share price rose today -- notably above the acquisition price of $35 per share. The all-cash transaction is subject to regulatory review, shareholder approval and other customary closing conditions and is expected to close in the fourth quarter of 2006. Although he sees the deal as a big win for customers of both companies, Murray Beach -- president of Boston Corporate Finance Inc., a Westwood, Mass.-based technology-focused M&A investment banking firm – said no deal is done until it's done.
The acquisition makes a lot of sense, he said, because much of FileNet's success has been due to a close partnership with IBM. But given the competition between IBM and deep-pocket rivals EMC, Oracle and Microsoft, the deal could still be upset.