M&A Alert - June 19, 2010
IBM Acquires Coremetrics
Transaction Overview
On June 15 2010 IBM announced that it has agreed to acquire Coremetrics for an undisclosed amount.
Target Description
Coremetrics develops marketing analytic software. Their software allows businesses to deeply understand how consumers interact with their websites to measure and improve the effectiveness of online marketing programs and product sales efforts. Clients include 13 of the top 25 online retailers as well as major brands such as Bank of America, Virgin Atlantic, Office Depot and Victoria’s Secret. Competitors include Omniture (recently acquired by Adobe), Unica, Webtrends and Google’s free offering, Google Analytics. The company was founded in 1999 and initially raised $113m. In 2002, the company was recapitalized and ultimately raised an additional $111m in funding from Arthur Patterson of Accel Partners, Eric Byunn of FTV Capital, Dan Nova of Highland Capital Partners, and Robert Migliorino of W Capital Partners across five rounds.
Buyer Description
IBM provides a broad array of hardware, software and services to business customers. IBM’s software offerings span across many categories and are generally oriented toward helping large and medium-sized businesses run their businesses more efficiently. IBM plans to integrate Coremetrics into its WebSphere product line. In fact, IBM and Coremetrics had previously jointly built integration between several of their respective products including IBM’s Websphere Commerce, Portal and Sales Center. IBM’s software group has acquired 55 companies since 2003. The key executive sponsor of the deal was the General Manager of IBM’s WebSphere group Craig Hayman.
Transaction Parameters
The transaction details were not disclosed. We do know that Coremetrics has a highly regarded product offering relative to its competitors and demonstrated 20% revenue growth from 2008 to 2009 in spite of a difficult economic environment. This sector, web analytic software, has been fairly active recently with a highly notable transaction of Adobe purchasing Omniture for $1.7b, which we reviewed previously.
Edit: The transaction has been reported to be valued at an estimated $150m.
Strategic Rationale
Coremetrics helps fill a large hole in IBM’s online commerce and analytic product set. IBM has a strong product and services set around helping companies build robust commerce oriented websites. They also have a very solid offering around analytic software via their 2007 acquisition of Cognos, one of the leading independent business intelligence vendors at the time, as well as SPSS and Redpill Solutions in 2009. Interestingly however, IBM has always had a product hole around providing robust marketing and website analytic software. Websites, whether online or mobile, have become an extremely important marketing and commerce vehicle for companies big and small. Coremetrics brings very solid capabilities to help fill out IBM’s product hole.
Architect Partners’ Observations
It’s interesting to us that it took so long for a traditional enterprise-centered vendor, like IBM, to seriously enter this segment. In essence, the Coremetric product set brings visibility into how users interact with and respond to a company’s online and increasingly mobile presence, their internet website. Clearly, if you are an internet retailer, like Amazon.com, this information is crucial to understanding your customer, improving the user experience and learning what translates into product sales and what doesn’t. The same is true as mobile devices (i.e. mobile phones, tablets, kiosks, …) with internet access proliferate. These emerging devices will inevitably have unique characteristics in terms of how consumers use them and what works and doesn’t work both from the consumer and online businesses perspective. Gathering key data, analyzing it, guiding experimentation with immediate feedback and ultimately understanding what drives user satisfaction, and ultimately spending, is fundamental to running many types of businesses today, regardless of size. As is common when a leader makes a move, it frequently acts as a catalyst for competitors to act as well.