IBM to buy Rational Software
By Paul Roberts and John Blau, IDG News Service
DECEMBER 06, 2002
IBM has agreed to acquire Rational Software Corp. for $2.1 billion, the companies said in a joint statement today.
Cupertino, Calif.-based Rational provides software tools and services for developing business applications and other products, such as embedded software for cell phones, medical systems and other devices, the companies said.
The acquisition will allow IBM to provide a software development environment for companies that want to integrate their business processes and software infrastructure across their operations, including suppliers and customers, the companies said.
Ninety-eight of the Fortune 100 companies, including IBM, use Rational's tools, according to the statement.
IBM already offers close integration with a wide variety of Rational's software products. The IBM WebSphere tools, built on the Eclipse open-source platform, provide a single portal-like interface that gives software developers access to a wide range of tools from other software vendors, including those made by Rational.
The Eclipse project, launched last year (see story), is managed by a consortium of vendors that includes Borland Software Corp., Fujitsu Software Corp., Red Hat Inc. and Sybase Inc., in addition to Rational.
"This will provide IBM with the end-to-end application development process integration that we hear customers telling us they want," said Steve Mills, an IBM senior vice president and group executive of the Software Group, during a conference call this afternoon.
"There's a shift in focus among medium- and large-size businesses to integrate horizontally, to create an on-demand environment, to focus on process integration, not function automation. They need tools that provide design capability, and a platform for integrating team development," Mills said.
Responding to news of the acquisition, Hewlett-Packard Co. said in a statement that it will continue to have a strong business relationship with Rational, including joint activities as part of the Eclipse.org industry group. HP said it would continue to work with IBM/Rational and Microsoft Corp. and sees the future of application development in interoperability between the Java and Microsoft .Net platforms.
Industry experts said the acquisition doesn't come as a surprise.
"I think it's something we had somewhat expected in that there's been over the past year a movement to where you can see the providers of integrated development environments expanding their tool kits such that they become integrated life-cycle environments," said Thomas Murphy, senior program director at Meta Group Inc. in Stamford, Conn.
Whereas integrated development environments have been focused on providing tools for editing, compiling and debugging code, they increasingly need to support so-called life-cycle management functions such as modeling, testing and version control, Murphy said.
The announcement is all part of a transformation of the application development market akin to the changes wrought on the office productivity software market by the release of Microsoft's Office suite in the 1990s, Murphy said.
Once the acquisition is completed, IBM plans to sell Rational's application development software through the Rational sales force, which will be incorporated into IBM's sales team, the companies said. In addition, IBM intends to integrate Rational's products more tightly with its own software offerings, they said.
The Rational purchase follows a series of announcements this year in which IBM moved toward consolidating its range of development tools onto a single infrastructure with the Eclipse platform as a foundation and comes amid predictions that the market for application development tools will be a bright spot in an otherwise dull technology market, according to industry watchers.
Market research firm IDC has predicted growth of 11.5% annually through 2006 in the market for application development and deployment.
That market will be driven, among other things, by the emergence of Web services and XML-enabled tools that make older application development tools obsolete, according to a report released by Framingham, Mass.-based IDC.
"IBM needed to be able to expand their platform," Murphy said. "For Rational, all the people who used to be their partners were becoming less so. Microsoft is strengthening its own suite; Borland picked up a number of competitors; Oracle is building all this stuff. For Rational and IBM -- both of them were driven this way."
With IBM's size and cash position and the downturn in the technology markets, Rational was an easy target for acquisition, Murphy said.
"When you look at the value, $2.1 billion is not a huge premium on where (Rational) is trading now. And obviously they're trading down a lot lower than where they used to be. But if you've got cash and a platform, those are the companies that are going out to make acquisitions. We've seen a bunch, and I think we may see more," Murphy said.
Rational will join other software purchases, including Tivoli and Lotus, as a new brand and new division of IBM's Software Group.
As with IBM's other purchases, Rational will retain its brand name. But IBM may look to move some of its other, complementary technologies under the Rational umbrella, according to Mills.
Rational co-founder and CEO Mike Devlin will serve as general manager of the division, reporting to IBM Senior Vice President and Software Group executive Steve Mills, IBM said.
There are no plans for layoffs of Rational workers and no plans to relocate workers at Rational's main development centers in Cupertino, Calif., and Lexington, Mass., according to Sweeney.
"Our plan is to invest in this business. Our approach to software business is to get the return by exploiting the broad channel that we have and growing the business," Sweeney said.
However, employees working in some of the company's smaller branch offices around the world may be consolidated with other IBM facilities in those areas, according to Sweeney.
IBM and Rational anticipate closing the deal in the first quarter of 2003, they said. |
