(IBM) International Business Machines to Acquire DemandTec

International Business Machines Corp. (IBM) has agreed to acquire DemandTec Inc. (DMAN), a cloud-based analytics solutions provider, for an estimated $440 million. This would be IBM’s fourth acquisition in a span of 3 months. The proposed acquisition will enhance and strengthen IBM’s Smarter Commerce initiatives. In an all cash transaction, IBM will be paying $13.20 per share for the acquisition.

DemandTec Inc., based in San Mateo, California, provides software that analyzes consumer buying patterns and helps retailers to ascertain the best price and product mix. In the process, DemandTec’s software helps companies to increase revenues and profits. The company boasts more than 450 retailers as its clients, which include grocery, drug, convenience, consumer electronics, office supplies, apparel, department stores, and quick-serve restaurants. Well known companies like Best Buy Co. Inc. (BBY), Target Corp. (TGT), and Wal-Mart Stores Inc. (WMT) are all part of its list of elite clients. Moreover, the company has 31 patents in fields of pricing, response analysis and promotion analysis.

IBM is making every possible move to incorporate cloud-based services in the Smarter Commerce segment to help its clients get a better understanding of the market dynamics and remain profitable through quick and effective business decisions. IBM expects the Smart Commerce initiative to yield $20.0 billion in software by 2015. The acquisition of DemandTec would be incrementally positive for IBM, as the latter has a huge client base and it logs a cloud-based annual sales figure of $82.4 million.

With $20 billion to spend till 2015 on acquisitions, we expect IBM to continue with its strategy to acquire companies, which it deems necessary to achieve its 2015 goals.

The competitive landscape in cloud computing is heating up, with the technology bellwethers making several acquisitions to gain traction in the market. One such hot deal is Oracle Inc. (ORCL) acquiring RightNow Technologies Inc. (RNOW) for $1.5 billion. Oracle will likely integrate RightNow’s software into its own portfolio of online offerings, which include programs for managing sales and marketing and human resources.

More recently it was reported that Oracle Inc. and SAP AG (SAP) were gearing up to acquire California-based cloud-computing software company SuccessFactors Inc. (SFSF). However, Oracle had to make way for SAP, as the latter finally acquired SuccessFactors for $3.4 billion.

Nonetheless, IBM remains a heavyweight in the cloud computing market and its strong cash balance enables IBM to acquire companies with high intellectual property that can drive further growth for the company.

IBM is experiencing strong revenue growth across all geographical regions, coupled with robust growth in emerging markets worldwide. IBM expects these growing markets to drive revenues and increase growth in 2011 and beyond.

We have a long-term Neutral recommendation on IBM. Nonetheless, we are optimistic about its strong fundamentals and robust growth prospects going forward. We therefore have a Zacks #2 Rank for IBM, which translates into a short-term ‘Buy’ rating.

BEST BUY (BBY): Free Stock Analysis Report

DEMANDTEC INC (DMAN): Free Stock Analysis Report

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ORACLE CORP (ORCL): Free Stock Analysis Report

RIGHTNOW TECH (RNOW): Free Stock Analysis Report

SAP AG ADR (SAP): Free Stock Analysis Report

SUCCESSFACTORS (SFSF): Free Stock Analysis Report

TARGET CORP (TGT): Free Stock Analysis Report

WAL-MART STORES (WMT): Free Stock Analysis Report

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