SPSS acquisition reflects importance of customer analytics
The importance of customer knowledge was reflected this week in the announcement from IBM that it had agreed to buy Chicago based data analytics company SPSS Inc.
It will pay about $1.2 billion in cash to gain software that helps businesses analyze and predict trends. IBM, led by CEO Sam Palmisano, will use the purchase to bolster the software business, where profit margins are more than twice as big as in services. Palmisano pledged this year to “go on offence” in the global recession, making acquisitions and investing in research.
This month, IBM raised its full-year profit forecast to at least $9.70 a share from $9.20. “This year is going to be a down year for many IT software services — however, SPSS’s analytics business is expecting growth,” said Andy Miedler, a St. Louis-based analyst at Edward Jones & Co. “That speaks well to the areas IBM is choosing to invest in, and it furthers their business transformation into a software leader.” He advises investors to buy IBM stock.
SPSS’s technologies help businesses assess consumer data, forecasting demand for their products and examining patterns to better understand customer data, but also to detect fraud. It has a number of banks among its client list, including Lloyds TSB, Credit Suisse and Rabobank. It forecasts future trends and spot shifts in consumer patterns or behaviour, assisting with customer acquisition and retention. By understanding consumer spending patterns and behaviour, the technology can reduce credit risk and fraud and increase customer loyalty.
IBM says the deal will help expand its Information on Demand software portfolio and business analytics capabilities which will help clients cut costs, reduce risk, and increase profitability through data capture, data mining and statistical analysis. The global market for analytics software probably will climb to $25 billion this year, IBM said, citing data from researcher IDC. SPSS will give IBM a foothold in predictive analytics, a market that is being recognized as crucial.
Ambuj Goyal, general manager of information management at IBM said: “The world is moving from doing the analysis of data in the background by some business-smart guy,” to getting “real- time predictive answers without being an analyst,” Goyal said in an interview.
IBM has made about 80 acquisitions in hardware, software and services since Palmisano took the reins in 2002. Most of the deals, including the $4.5 billion purchase of Cognos Inc., have bolstered the software business. IBM had tried to buy Sun Microsystems Inc., according to rumour, but that bid dissolved after the companies disagreed on the price. Oracle Corp. later agreed to buy Sun for about $7.4 billion.
The SPSS purchase terms include a termination fee of $23.5 million that SPSS would pay should the merger fail. IBM will pay $50 a share, a 42% premium on SPSS’s closing price on Monday of $35.09.T he deal is expected to close in the second half of this year, subject to SPSS shareholder approval, applicable regulatory clearances and other customary closing conditions.