Big Blue Does It Again

Why stop when you're on a roll?

IBM (NYSE: IBM  ) is a bona fide acquisition machine these days. Big Blue has been picking up companies like they're going out of style. The most recent in the company's string of purchases is DemandTec (Nasdaq: DMAN  ) .

IBM is acquiring the small company in an all-cash transaction for $13.20 per share, or roughly $440 million, which represents a 57% premium over yesterday's close for DemandTec shareholders who have woken up on the right side of the bed today. If the deal falls through for some reason, IBM will still be forking over a $14 million termination fee.

DemandTec specializes in retail price optimization applications delivered exclusively from the cloud. The analytics software allows companies to define specific marketing strategies based on understanding consumer behavior and making actionable pricing, promotion, and merchandising decisions.

The company has operated at a loss for years, and total revenue last quarter was just $22 million. DemandTec's second-quarter net loss widened by 55% to $4.4 million even as sales ticked up 8%. Hopefully, IBM can turn that red ink into a shade of black if it can realize cost-saving synergies. DemandTec's customer list includes major retailers Best Buy, Home Depot, and Target, which can all effectively start making their checks payable to Big Blue.

IBM will be rolling DemandTec into its Smarter Commerce initiative, whose market opportunity it estimates at $20 billion in software alone. It butts heads with Oracle's (Nasdaq: ORCL  ) own retail commerce solutions.

The deal is IBM's only acquisition of late that ties into commerce software. For example, Big Blue's recent buys of Q1 Labs (security intelligence), Platform Computing (cluster and grid management), and Algorithmics (financial risk management) aren't related to Smarter Commerce.

There has been a lot of consolidation in the cloud lately with Goliaths picking up Davids: Oracle is picking up RightNow Technologies (Nasdaq: RNOW  ) and SAP (NYSE: SAP  ) just agreed to buy SuccessFactors (NYSE: SFSF  ) .

IBM continues its strategy of making numerous smaller acquisitions and stitching them together, a stark contrast from Hewlett-Packard's (NYSE: HPQ  ) ginormous Autonomy purchase to get more into the soft side of things. IBM has even attracted a vote of confidence from Warren Buffett, despite his self-proclaimed allergy to tech companies. With consolidation afoot, which small cloud player will be next to get swallowed?

Add these big cloud players to your watchlist to see what gets eaten next.

Fool contributor Evan Niu holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Oracle, Best Buy, and International Business Machines. Motley Fool newsletter services have recommended buying shares of The Home Depot. Motley Fool newsletter services have recommended writing covered calls in Best Buy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On December 09, 2011, at 1:24 PM, tomd728 wrote:

    Confused on what "tech" stock to buy ?

    What "Cloud" player to buy ?

    I know you're not............IBM of course !

    Happy Holidays to all Fools.

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