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August 5, 2008

IBM bolsters BPM biz with Ilog buy

IBM has announced that it plans to acquire business rules software vendor Ilog in a deal worth $340m (170m pounds). IBM hopes the deal will improve its offering in the application lifecycle management market, as well as developing IBM's BPM and SOA offerings.

By Steve Evans

The offer equates to €10 per share — a 37% premium on Ilog’s closing share price before the deal was announced, and a 56% premium on the company’s average closing share price over the previous month.

Gentilly, France-based Ilog targets several markets: business rules management and optimisation, visualisation and supply chain management. It is probably best known for its business rules software, which enables companies to streamline their business processes, and reduce companies’ reliance on hard-coded application logic. It is said to be able to put some power to change business processes in the hands of business users, too.

IBM does have business process capabilities, namely within WebSphere Process Server, but it has tended to partner with rules companies — including Ilog — for clients with anything other than straight-forward rules requirements. Rivals to Ilog in the business rules space include Pegasystems, Fair Isaac, Haley, Lombardi Software, CA, Oracle and more.

OnStrategies Perspectives analyst Tony Baer said the deal will suit both parties. Both companies know each other quite well, having been partners in one way or another for about a dozen odd years. Baer added that, Ilog’s business rules engine fills a key gap in the WebSphere Process server BPM line.

Baer noted that, unusually for a company of its size, Ilog has three separate product families that target almost completely different markets. But despite that, financial results were not particularly impressive.

Baer added: The company happened to grow satisfactorily, showing profits for seven straight years, so that it never had to face the uncomfortable question of refocusing. Had it stayed independent, it might have had to do so; while revenues grew roughly $20m this year to $180m, profits sank from $4.9m last year to a paltry $500k this year. This made the company an attractive proposition for IBM.

The good news is that Ilog is a great fit for IBM, Baer said. Its rules engine adds a piece missing from WebSphere Process Server, and in fact has excellent synergy with a raft of IBM products that start with Business Events (apply sophisticated rules to piecing together subtle patterns emerging from torrents of data), FileNet content server, WebSphere Business Fabric (the old Webify acquisition, providing frameworks for building vertical industry SOA templates), and the list goes on.

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Allan B. Krans, senior analyst at Technology Business Research, said the deal is likely to see IBM encroach further into the, Gray area between middleware and applications. Prior acquisitions such as Webify pushed IBM towards a componentised middleware strategy, which provides many of the same services as business applications, without requiring adoption of an entire platform. The acquisition of ILOG is an extension of this push, particularly with the company’s LogicTools Supply Chain Management Application Suite, he said.

The deal is dependent on EU and US antitrust clearance.

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