IBM Acquires MRO Software

Updated from 1:27 p.m. EDT

IBM (IBM) continued its shopping spree on Thursday, picking up MRO Software (MROI) for $740 million in cash, or about $25.80 a share.

IBM is paying a 19.4% premium for the MRO shares as of Wednesday's closing price of $21.60. On Thursday, MRO shares skyrocketed 17.9%, or $3.86, to $25.46 in heavy trading.

IBM said the acquisition will boost its ability to build repeatable tools based on service oriented architectures (SOA). The company will be integrated into IBM's Tivoli software unit and also be available through IBM Global Services.

"This is an investment for growth," Al Zollar, general manager of IBM Tivoli software, said on a conference call about the deal. "It's really about growing top-line revenue in both our software and services business."

"We want technologies inside of our services business that are asset-based and based on SOA technologies," he said. He noted that the deal will help the company address a broader set of client needs.

MRO's software helps customers manage physical assets and corresponding financial, operational and technology details, IBM said. For instance, aviation companies use MRO's tools to keep track of planes, ground-support equipment and hangars. The company also works with energy, manufacturing, pharmaceutical, telecommunications and utilities firms.

"This acquisition will provide companies with a single view of all their assets, helping them to maximize efficiencies, drive productivity, and innovate business processes across the enterprise," Zollar said in a statement.

"I think it's a smart acquisition for IBM," said Kim Caughey, senior equity research analyst with Fort Pitt Capital Group, which holds IBM shares. "I see the big three (IBM, CA (CA), and BMC Software (BMC)) continuing to gobble up point product solutions for systems and network management to provide more functionality to attract and retain customers."

The deal marks IBM's second software buy in two days. On Wednesday, Big Blue bought privately-held Webify Solutions, an Austin, Texas-based maker of software used to build SOA. It will be added to IBM's WebSphere software group.

"The software unit is the most entrepreneurial unit in IBM," said Bob Djurdjevic, president of Annex Research, which owns IBM shares. "They are doing what they need to do to fill out their applications and systems portfolio."

The latest moves "suggest that we can look forward to an increasing growth rate in the software group."

For IBM's second quarter, software was one of the star performers. Revenue grew 5% to $4.2 billion. Sales from IBM's middleware brands, including WebSphere, Tivoli, Lotus and Rational products, were $3.2 billion, up 4% from a year earlier.

And IBM's Tivoli software division itself posted double-digit revenue growth in the first two quarters of 2006.

"Rather than buying stock back, [the rest of] IBM should be investing in their own businesses, like software is doing," Djurdjevic said.

IBM said MRO has produced double-digit growth since the company reported revenue of $199.2 million for its fiscal year ending September 2005. The Bedford, Mass., company has 900 employees around the world.

The deal is expected to close in the fourth quarter.

Shares of IBM rose 24 cents to $76.56 in recent trading.

>To order reprints of this article, click here: Reprints