When the deal closes Telelogic will become part of IBM’s Rational Software division, headed by Dr Danny Sabbah, general manager. There is sure to be at least some disquiet about this deal within the Rational camp generally – and anyone still directly involved with the Rational RequisitePro requirements and use case management tool in particular – because there are considerable overlaps between Telelogic’s and Rational’s software portfolios.
Speculation as to who the bidder was has been rife since Telelogic was forced into announcing that it had received a conditional offer – without naming the acquirer – on June 4.
IBM said yesterday it will buy Telelogic for 21 Swedish Kronor per share, taking the total price to 5.2 billion Swedish Kronor (or approximately $745m). The price comes in at 3.6 times Telelogic’s sales of $208m for full year 2006.
IBM said that price is a premium of around 21% over the closing share price before the conditional offer announcement from Telelogic on June 4; is 25% above the average closing share price for the last 20 trading days up to and including 31 May; and 39% above the average closing share price for the last 60 trading days up to and including 31 May.
Not surprisingly, Telelogic’s board is unanimously in favor of the offer, which is still subject to the statutory closing conditions of such deals.
Telelogic has around 8,000 customers worldwide but has seen most success in the aerospace and defense, telecommunications and automotive industries. The company saw year-to-year sales growth of 20% between ’05 and ’06, but it was perhaps unclear how it could get its products to a wider market, so selling up to a larger player with a broader footprint makes sense.
Announcing the deal, IBM Rational’s Sabbah said, IBM’s acquisition of Telelogic will complement our entire portfolio to help our clients drive efficient and effective software development processes that are vital to product delivery, while Telelogic’s CEO Anders Lidbeck said, This acquisition will provide our clients with enhanced capabilities to develop and deploy complex systems on a global basis. IBM and Telelogic clients will be able to leverage a broader set of capabilities without the need to replace existing systems.
Our View
There are several overlaps between Telelogic’s and IBM Rational’s portfolios. Rational RequisitePro, which analysts say has anyway not kept up with the latest trends in requirements capture and management, is looking likely to be sidelined or dropped, with Telelogic’s far more successful and up-to-date Doors product taking the limelight.
It’s also not clear where the acquisition of Telelogic leaves Rational’s testing products at this stage, as there are obvious overlaps there with Telelogic’s Tau systems design, development and testing line.
But as well as acquiring Telelogic’s 8,000 customers, IBM will be glad to have its hands on its enterprise architecture toolset, System Architect. This had become one of the jewels in the Telelogic crown since Telelogic bought the product with its acquisition of Popkin Software in April 2005.
Enterprise architecture was a big missing piece of the puzzle for IBM, and yet enterprise architecture tools have become increasingly strategic purchases for many companies, as well as offering a good starting point on the road to services oriented architecture (SOA).
Another big win for IBM is surely Telelogic’s strength in the embedded modeling and development space, an area it bolstered further with its own acquisition of I-Logix back in March of 2006. Telelogic’s Focal Point product will also be a welcome addition to the Rational portfolio, giving it product lifecycle management or PLM capabilities that have been at best weak and at worst missing altogether until now.
Analyst firm Ovum’s principal analyst in this space, Bola Rotibi, told us she believes there are many positives from this deal for both Telelogic and IBM customers. She pointed to Telelogic’s enterprise architecture and embedded development and modeling tools as the key wins for IBM and its customers, and noted that IBM and Telelogic have similar cultures and ethos, which should ease the integration.
However she said that, We thought that too of IBM and Rational when the former acquired the latter five years ago, and look how long it has taken for those two companies to finally settle into a coherent and workable product roadmap. IBM has come a lot further since then and certainly recognizes its mistakes in the handling of Rational – even if it doesn’t publicly acknowledge them – so there is hope that they will handle the integration of Telelogic more sensibly and productively.
Saying that the Telelogic buy gives Rational a nice boost in the software testing space, Ovum’s Rotibi added: Watch out HP (Mercury), Compuware and Borland.
Indeed, while Borland could probably not have afforded to acquire Telelogic for $745m as IBM has done, HP and Compuware may well have been keen to get their hands on Telelogic, not least because its enterprise architecture tools give whichever firm owns them the chance to engage with some senior IT decision-makers and business analysts, whose attention is not always easy to grab.
