) recently signed a definitive deal to acquire
) for approximately $1.3 billion in cash or $46.00 a share. The
deal is expected to close in the fourth quarter of 2012.
Wayne, Pennsylvania-based Kenexa develops software that helps
enterprises manage human resource ("HR"). Its HR solutions are
widely popular, which is reflected in its strong client base that
consists of approximately 8,970 companies across a number of
industries. In the recently concluded second quarter of 2012,
Kenexa reported earnings of 28 cents on revenues of $86.3
Kenexa is IBM's 10
acquisition in 2012. The company completed eight acquisitions in
the first half of 2012, spending approximately $2.21 billion. Most
of the acquisitions were relatively small companies except
DemandTec, for which IBM paid $440.0 million.
It is noteworthy that most of the acquired companies offer
analytical products, a market on which IBM has been focusing for
some time. According to Bloomberg, IBM has spent $16.0 billion on
30 analytics acquisitions over the last five years.
IBM expects business analytics to generate $16.0 billion in
revenues by 2015. For further details, please see
IBM to Focus on Analytics This Year
The Kenexa acquisition will further expand IBM's business
analytics software offerings going forward. The acquisition is
widely seen as a major strategic move from IBM to bolster its
position in the cloud based software-as-a-service ("SaaS) market.
SaaS is a software delivery method that enables data access from
any device with an Internet connection and web browser. In this
web-based model, software vendors host and maintain servers,
databases and codes that constitute an application.
Demand for SaaS-based products have been on the rise for some
time and is expected to increase manifold because of some inherent
benefits associated with the platform. Applications delivered over
the SaaS platform not only allow enterprises to start using them
instantly, but also prove more cost effective compared to
traditional products installed at a customer's onsite data
Moreover, SaaS applications are more scalable and they can be
continuously upgraded unlike traditional products where upgrading
is something of a hassle. According to market research firm
Gartner, sales of online software, which touched $12.3 billion in
2010, is expected to more than double to $22.1 billion by 2015,
much faster than traditional software.
The staggering growth prospect is the primary factor attracting
IT giants, such as IBM,
). Both SAP and Oracle enjoy a leading position in the SaaS-based
application market based on a number of acquisitions
(SuccessFactors, Ariba, RightNow, Taleo) in the recent past.
We believe that the entrance of IBM in the cloud-based HR
solutions market will intensify competition going forward. Although
it is very difficult to predict a clear winner among these
companies, considering the depths of their product portfolios and
diversified customer base, we believe that IBM has significant
advantage due to its strong balance sheet. IBM intends to spend $20
billion till 2015 on acquisitions.
Thus, we remain Neutral over the long term. Currently, IBM has a
Zacks #3 Rank, which implies a Hold rating in the near term.
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