| NEW YORK
NEW YORK IBM, joining the deal-making frenzy, plans to buy data analytics company Netezza Corp for $1.7 billion to expand in technology services and help clients better analyze market information.
IBM agreed to pay $27 per share for Netezza, the companies said on Monday, a 10 percent premium from Friday's closing price of $24.60.
Netezza's stock rose 14.9 percent on Monday to close at $28.27, slightly above the offer price.
Some analysts said another offer could emerge, given a recent resurgence of dealmaking in the sector, including a bidding war between Hewlett-Packard Co and Dell Inc over data storage company 3PAR Inc.
"As such, we recommend investors to keep their position rather than sell with the idea that another bidder may appear," said Roth Capital Partners analyst Nathan Schneiderman.
Veteran technology banker Frank Quattrone's Qatalyst Group, which advised 3Par, also advised Netezza, according to a source familiar with the situation.
The latest deal comes as International Business Machines Corp is shifting its focus from increasingly commoditized hardware to higher-margin software and services, particularly analytics, which help clients analyze market data to plot trends or prevent fraud.
Marlborough, Massachusetts-based Netezza sells appliances that combine analytical software and hardware to help, for example, online dating site eHarmony comb through online profiles and massive Web data to figure out who might be a good match for a particular user.
IBM said analytics, which accounted for about $9 billion of IBM's $95.76 billion in revenue last year, was a significant growth opportunity for the company. IBM employs 6,000 analytics consultants, while Netezza has 500 employees.
IBM's offer raised speculation that other data analytics companies such as Teradata Corp could be targeted next.
An IBM executive said it chose Netezza due in part to its ability to analyze online data quickly. The two companies also are partners, with Netezza using IBM hardware.
"Speed is critical," said Arvind Krishna, general manager of information management at IBM. "Clients don't have the patience to wait for weeks."
Other Netezza customers include retailers as well as financial exchange operator NYSE Euronext.
Quattrone's involvement could be another reason investors might expect Netezza to attract a higher offer.
Quattrone was widely credited with creating a bidding frenzy over an obscure and unprofitable data storage company. HP ultimately won the deal with a premium that many analysts said was unreasonably high.
Qatalyst did not respond to requests for comment.
Jayson Noland, an analyst at Robert W. Baird, said companies such as Dell, HP, NEC Corp and SAP AG could also step forward for Netezza.
"We assume these firms have already discussed this opportunity with bankers," he said.
Others, however, were more cautious about a rival bid. Dell may be smarting from its loss against HP over 3PAR while HP may be giving its wallet a rest, some said. HP followed the 3PAR deal with a $1.5 billion offer for security company ArcSight,
"It is going to be a stretch for HP to get into this bidding," said Morningstar analyst Sunit Gogia.
Last month saw an unseasonable burst of deal making, including Intel Corp's agreement to buy McAfee Inc for $7.7 billion. Thomson Reuters data showed total announced deals of $262 billion in August, the highest for the month since 1999.
With low interest rates, record cash holdings and low stock values, analysts say more deals are likely.
Another trend driving deals in technology is the ambition among large vendors to become one-stop shops selling everything from networking and servers to software and services.
IBM said in May that it planned to spend about $20 billion in acquisitions through 2015 to expand its software and services business.
IBM's top rivals include HP, Oracle Corp and Cisco Systems Inc, all of which have announced new services and acquisitions in an effort to offer a broader set of technology services to clients.
Analysts also said they expected the deal to spark interest in other data analytics companies including Teradata and smaller, privately owned companies such as ParAccel and Vertica. Teradata shares closed up, $2.59, or 7.5 percent, at $37.05.
Netezza, which also makes data warehouse and monitoring equipment, reported fiscal second-quarter revenue of $63.8 million last month, up 45 percent from a year earlier. It also raised its full-year revenue forecast, a rare move in a sector fretting about a possible double-dip in technology spending.
Many of IBM's recent acquisitions have been small, low-key deals. Chief Executive Samuel Palmisano said last week that IBM buys companies at "reasonable valuations" and criticized HP's $2.4 billion acquisition of 3PAR as well as its $1.5 billion deal to buy security technology company ArcSight Inc.
IBM's offer for Netezza values it at over six times its expected revenue for 2010, a healthy valuation in the tech industry where anything over five is considered high, but lower than the multiple of around nine times that HP offered 3PAR.
IBM shares closed up $1.60, or 1.2 percent, to $131.79.
The companies said they expected the deal to close in the fourth quarter. The merger agreement includes a termination fee of $56 million, according to a regulatory filing.
(Reporting by Ritsuko Ando and Nadia Damouni; Additional reporting by Liana B. Baker; Editing by Lisa Von Ahn, Andre Grenon, Richard Chang and Carol Bishopric)