Market Overview

IBM's Cloudy Dreams Become Clear with DemandTec Acquisition

For nearly half a billion, IBM is slated to add a cloud-based analytics company to its portfolio.

This news comes after SAP AG (NYSE: SAP) announced its plans to acquire a cloud computing firm of its own, SuccessFactors (NYSE: SFSF), prompting my colleague to write about data centers, which he believes will soon be a thing of the past.

With this latest acquisition, IBM (NYSE: IBM) is presumably looking to take advantage of DemandTec's (NASDAQ: DMAN) price and promotion improvement tactics.

“DemandTec has unprecedented capability to improve customers' price and promotion tactics on a stand-alone basis and connect retailers and manufacturers for collaborative planning through the cloud,” Dan Fishback, President and Chief Executive Officer of DemandTec, said in today's company release. “IBM Smarter Commerce is the perfect fit for DemandTec. IBM is the only provider of price and promotion offerings within a rich solution set that supports companies' buy, market, sell and service processes.”

IBM and DemandTec have entered into a definitive merger agreement, in which IBM will acquire the cloud-based analytics company in an all-cash transaction at a price of $13.20 per share. That's a total of $440 million.

IBM will merge DemandTec into its Smarter Commerce initiative by adding “cloud-based price, promotion and other merchandising and marketing analytics to help companies better define the best price points and product mix based on customer buying trends,” the company announced today.

More specifically, IBM cited the challenge that organizations face in “struggling to meet the demands of rapidly shifting customer buying patterns in the era of mobile and social networks.” IBM further noted that this new digital marketplace requires companies to be “highly responsive” to consumer demands, “whether it's setting and executing the right pricing strategy or the ability to automatically adjust pricing based on online and offline data.”

Clearly IBM wrote this press release for an informercial audience. But that doesn't make the acquisition any less significant. IBM believes that the market opportunity for Smarter Commerce is $20 billion in software alone. With potential profits in that range, the $440 million spent on DemandTec could prove to be a vital (not to mention low-cost) investment.

“IBM Smarter Commerce is redefining how brands buy, market, sell and service their customers in ways that their customers want,” Craig Hayman, General Manager of Industry Solutions at IBM, said in today's release. “Bringing science to the art of pricing and promotion is a big part of this strategy, and the combination of DemandTec and IBM will help marketing and sales executives in retail and other industries drive more revenue and increase profitability.”

DemandTec comes to IBM with approximately 450 customers worldwide. The company also holds 31 patents in the areas of pricing, response analysis, and promotion analysis. That's a far cry from the thousands of patents that Google (NASDAQ: GOOG) stands to gain from its acquisition of Motorola (NYSE: MMI). But it wasn't the patents that IBM was after.

Thus far, analysts seem to be positive on today's announcement. Nabil Elsheshai, an analyst with Pacific Crest, told Benzinga that DemandTec “makes a lot of sense for IBM.” Looking ahead, Elsheshai thinks that Taleo (NASDAQ: TLEO) or Cornerstone OnDemand (NASDAQ: CSOD) could be acquisition targets.

ACTION ITEMS:

Bullish:

If you're intrigued by the cloud-based acquisition trend, consider the following:

  • Take Elsheshai's advice and keep an eye on Taleo and Cornerstone.
  • SAP AG could benefit well from its acquisition of SuccessFactors.

Bearish:

For those who like the cloud but have no interest in the aforementioned acquisitions, consider these alternatives:

  • If you were intrigued by the SAP AG/SuccessFactors deal, you might want to keep an eye on one of their leading competitors, Oracle (NASDAQ: ORCL).
  • As a cloud-based provider of financial and enterprise resource planning software suites, NetSuite Inc. (NYSE: N) is a different kind of alternative.

Follow me @LouisBedigian

Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

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