IBM Buys 'Bubble Baby' CrossWorlds

Big Blue beefs up its middleware, picking up the integration software company for a cool $129 million.
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Another baby of the bubble has been bought up.

Integration software firm

CrossWorlds Software

(CWLD)

, which gained dubious attention when current chairman and then-CEO Katrina Garnett posed for ads in glossy biz mags wearing

a low-cut cocktail dress, will get bought by

IBM

(IBM) - Get Report

for the oh-so-low price of $129 million.

Over the past 12 months, CrossWorld has had a net loss of $13 million on $80.6 million in revenues. Considering those numbers, IBM picked up the company for just 1.6 times trailing 12-month revenues.

IBM said the move would enable it to expand its offerings in the software infrastructure and integration space by pairing CrossWorld's integration software with its own Websphere application server software. Application servers connect Web sites to the databases that power them, and integration software enables different kinds of computer programs to run together. The offerings are known in the software sector as middleware.

CrossWorld's integration software is especially good at connecting software in the telecommunications, financial services and industrial sectors. It can also stitch together specific software applications from different firms such as

Siebel

(SEBL)

,

PeopleSoft

(PSFT)

and

i2 Technologies

(ITWO)

, among others.

Steve Mills, IBM's software chief, said the deal will give his firm an added, sophisticated integration offering to sell alongside its Websphere applications server. IBM's own lower-end MQSeries integration software will also still be available.

"CrossWorld has been one of our partners over the years, and as we have engaged customers with them, it's become clear that there's a need for tighter integration," Mills said during an in-flight telephone interview aboard a plane from Austin, Texas. "We can leverage all the pieces that CrossWorlds has and focus our solutions around a combined CrossWorlds-Websphere infrastructure."

Kate Mitchell, vice president of marketing at CrossWorlds rival

SeeBeyond Technologies

(SBYN)

, said the CrossWorlds-IBM deal validates the integrations space, and that more deals are likely to come.

"I think you'll see additional consolidation among the smaller players who don't have the vertical diversification," Mitchell said, though she stressed that SeeBeyond intends to remain independent. "This is a high-stakes game, to be able to build all the products companies look for and to have the kinds of partnerships it takes to make this stuff work well."

Mills said CrossWorld's 350 employees, but not Garnett, would come over to IBM after the deal closes in the first quarter of 2002.

In 1998, Garnett

caused a stir in Silicon Valley with her appearance in the ads. Critics alleged she was promoting herself over the company and selling sex rather than software. She stepped down from the CEO spot a year later to take the chairman position, and Alfred Amoroso, a former IBM exec, took the chief executive post.

In 2001, the shares of integration software companies have reeled along with other technology stocks. High-profile integration shop

webMethods'

(WEBM)

stock is off 89% year to date, while

Tibco

(TIBX)

is down 82%, and SeeBeyond is off 55%.

CrossWorlds began in 1996 and raised at least $50 million in private financing before launching a somewhat anticlimactic $46 million IPO in July 2000 at $10 a share. Shares closed at $3.54 Monday before the IBM deal's announcement but jumped 28.6% in Tuesday's markets to close at $4.55. IBM's $129 million cash offer was a 31% premium to Monday's close and put a per-share price of $4.65 on the deal.

Including Tuesday's big gain, that puts CrossWorld's year-to-date return at 10%, a move that CEO Amoroso said he could more than live with.

"Obviously, the market is very different from where it was in June of 2000," Amoroso said. "When I look at these numbers

of competing companies, I'd say we did pretty darn good for these shareholders."

IBM's Mills said Garnett's infamous black dress was not part of the deal.

"Oh, no, we didn't ask for it. We're strictly interested in the talent and the software assets, and we don't make a big deal on the dress code over here anymore," Mills said.