IBM to acquire Internet Security Systems

To boost up its array of products in the rapidly growing business of internet security, IBM took another step yesterday by announcing its plans to buy security software provider, Internet Security Systems (ISS) of Atlanta for $1.3 billion.

The recent purchase of the company, which makes security programs for computer networks, is the latest in a recent string of software acquisitions by Armonk, NY based International Business Machines Corporation.

ISS runs data centers that distantly prevent businesses from Internet-based attacks. ISS also sells software and hardware devices that companies can add to their computer networks to protect against Internet-based security threats.

According to a computer safety analyst, Daniel Ives, it is the only major player in that area. "Once IBM takes hold of it, it changes the whole ballgame. They have a whole bigger distribution channel," Ives said. "It is probably one of the most logical acquisitions I've seen in security software."

Its primary competitors include Cisco, Juniper Networks, McAfee and Symantec Corp.
In the yesteryears, IBM has often pointed to how the software being purchased would help IBM’s $47-billion-a-year services business, as more services tasks rely on software to improve efficiency.

The computer technology firm said it plans to sell Internet Security's products as services through IBM’s Global Services unit and integrate its programs into its Tivoli software for managing far-flung information-technology systems.

"This is something we couldn't do before because we didn't have the software assets to provide protection against Internet attacks," Kristof Kloeckner, vice president of strategy and technology for IBM's software group, said in an interview.

ISS would be the largest take over added to IBM’s services business since it acquired PriceWaterhouseCoopers’ Consulting for $3.5 billion in 2004. As a matter of fact, ISS is the first large software purchase that will be actually folded into IBM’s services business, instead becoming arm of the company’s software group.

The deal marks the fourth software-related deal announced by IBM this month. On August 10, IBM purchased document management software maker FileNet for $1.6 billion Dollars. On Aug. 3, I.B.M. agreed to buy MRO Software, whose programs are used by companies to track vehicles and equipment, for $740 million. Their combined value tops the $2 billion that IBM spent on acquisitions for all of last year.

IBM VP Kloeckner said the company will continue to make acquisitions, but he declined to give details. "We have enough freedom to do whatever is required to strengthen our business. We do not feel constrained," he said.

Security was the fastest-growing segment in the $207 billion market for business software last year, according to Forrester Research. Sales of security software products rose 16 per cent to about $10 billion last year.

In 2005, Internet Security Systems’ profit rose to $38.5 million on revenue of $330 million. After the deal was announced, ISS’s stock price surged by $1.62, or 6 percent, to close at $27.62 a share.

IBM shares dipped 28 cents, to $78.67. It has offered $28 a share for ISS.

IBM expects the acquisition of Internet Security to close in the fourth quarter.