IBM to Buy ISS for $1.3B

By Baselinemag  |  Posted 2006-08-23 Email Print this article Print

Big Blue takes a huge jump to expand its data security presence, with plans to incorporate Internet Security Systems into its services division.

IBM on Wednesday announced it plans to acquire Internet Security Systems for about $1.3 billion in cash--the fifth-largest acquisition in Big Blue's history.

Internet Security Systems, known as ISS, will become a business unit within IBM Global Services' security organization. The acquisition would be the biggest by IBM Global Services since it bought PriceWaterhouseCoopers Consulting in 2002. The companies said the deal is expected to close in the fourth quarter of 2006.

Atlanta-based ISS provides software, appliances and services to monitor and manage network vulnerabilities and exploits. IBM says the deal augments its 10-year-old security services business and gives it an "industry-leading automated security platform" that provides proactive security protection.

"This acquisition will create the world leader in Internet security services," said Val Rahmani, IBM Global Services' general manager of infrastructure management services, on a teleconference with reporters. "Security is an area of great and growing concern to our clients."

Analysts said IBM was making such acquisitions--most recently, it announced plans to buy FileNet for $1.6 billion--because it was challenged to grow its existing businesses organically. IBM is "using acquisitions to fuel revenue expansion within its software business," said Allan Krans, an analyst with Technology Business Research. Tom Noonan, president and CEO of ISS, will remain with IBM to run the ISS unit, as will ISS founder and chief security advisor Chris Klaus and the rest of the core management team. ISS has 1,300 employees worldwide, about 65% of which are based in U.S. Rahmani said IBM currently had no plans to reduce headcount.

IBM called specific attention to ISS's X-Force security service, which provides analysis of online vulnerabilities and threat conditions. ISS operates security operations centers in Atlanta, Tokyo, Brussels, Detroit and Brisbane, Australia.

IBM says it also expects to integrate ISS's software technology with Tivoli's information-technology service management portfolio.

The proposed IBM-ISS deal follows EMC's plans to acquire of RSAfor $2.1 billion last month.

Krans sees the security strategies of IBM and EMC differing: "While EMC is building up the moat, walls, and drawbridge to protect customer's data using RSA's encryption and access technology to protect data where it resides, IBM with its purchase of ISS is focusing more on a security-camera approach--lock the doors and monitor who's walking in."

ISS had $329.8 million in revenue for 2005--an increase of 13.8% from the year before--and posted a net profit of $38.6 million. The company, founded in 1994, claims it has 11,000 customers worldwide. Rahmani said she did not anticipate any antitrust challenges to the proposed acquisition.

Major ISS competitors include Check Point Software Technologies and Symantec.


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