IBM to buy analytics company for $1.2 billion

By Franklin Paul and Ritsuko Ando

NEW YORK (Reuters) - IBM plans to buy business analytics company SPSS Inc for $1.2 billion in cash to better compete with Oracle Corp and SAP AG in the growing field of business intelligence.

Shareholders of SPSS, which provides software and services to help companies analyze and forecast trends in consumer behavior, would receive $50 a share, a 42 percent premium to Monday's closing price.

The proposed acquisition, announced on Tuesday, follows a spate of deals in recent years in the business intelligence sector, such as Oracle's purchase of Hyperion, SAP's acquisition of Business Objects and International Business Machines Corp's own deal for Cognos.

Other names in the arena include MicroStrategy Inc, Actuate Corp and Datawatch Corp.

"We're in a period where consolidation seems to be a rule of the game," said Charles King, an analyst with Pund-IT Research. "SPSS was probably fine on its own as an independent company, but IBM provides the distribution and stability, the economics and technology foundation."

Shares of Chicago-based SPSS, a pioneer in business intelligence, jumped $14.36 or 40.92 percent to $49.45. The stock had already risen 30 percent this year.

UBS analyst Maynard Um estimates that SPSS could add 3 cents a share to IBM's 2010 earnings, but said the greatest gain may lie in deeper penetration into the analytics market.

"We believe actual benefits may prove greater as the deal adds to IBM's business and predictive analytics portfolio, which will be an essential part of IBM's smarter business systems and which the company has identified as a significant growth opportunity over the next few years," he said.

DOUBLE-DIGIT GROWTH

A senior IBM executive said he expects double-digit growth in its analytics business despite a weak economy that has forced many companies to cut back on spending.

"We're driving a plan for double-digit growth," Steve Mills, senior vice president and group executive of IBM's software group, told Reuters in an interview. "There is no lack of customer interest."

IBM said the deal would help expand its software portfolio and business analytics capabilities. Predictive analytics, combined with IBM's existing software and consulting skills, can help in preventing fraud or predicting the risks or patterns of a pandemic, it said.

IBM has been shifting its focus from hardware to more profitable software and services over the past decade, and Mills said the analytics business yields higher profit margins than the average IBM product or service.

Currently, Credit Suisse uses SPSS software to analyze information about its customers, then gives leads to its sales force. Police use these systems to mine data from incident reports to predict patterns of criminal behavior.

"The environment today is focused on sense and respond: what's happening and what we should do about it," said Ambuj Goyal, IBM's general manager of information management software. The acquisition of SPSS, he said, would help it move to "predict and act."