With an aim to expand its reach in online software application segment, tech giant, International Business Machines Corp. (NYSE: IBM) has announced plans to acquire its smaller rival Kenexa Corp. (NYSE: KNXA) in an all cash deal estimated at $1.3 billion, representing a 42% premium over Friday’s closing price of Kenexa’s stock.
Although Kenexa is an unprofitable company, it has reputation of posting very strong revenue growth. This Company is one of the leading software provider to human resources and consulting services; and. currently its software is used by about 9000 customers for recruiting, retaining and developing their employees. According to Steve A Mills, IBM’s senior Vice President, last year, Kenexa’s revenues leaped by around 44% to $282 million, (but it also posted a loss of nearly $4 million).
In general, IBM in the past preferred to stay focused on developing infrastructure software for example Web servers and data bases; however, amid intense competition in this segment and falling margins, gradually the company’s focus started to shift towards application based software, culminating in quite a few acquisitions in last few years.
IBM has been very proactively looking out for acquisitions in recent months. In fact, the company is determined to spend $20 billion on acquisitions between 2011 and 2015 with most purchases related to application based software business as company aims to expand its exposure to healthier margins business.
This acquisition is reminiscent of the latest trends going on enterprise software developing industry. As competition has intensified, most of the enterprise software developers are now looking at acquisitions, in order to transform themselves for the Internet age where the software is sold as a service over the Internet as opposed to selling it in expensive licensing packages.
Just few months ago, Oracle Corp. (NASDAQ: ORCL) acquired HR software maker Taleo Corp. for nearly $1.9 billion net of its cash and debt even as SAP bought its rival SucessFactors Inc. for $3.4 billion, last December and Salesforce.com Inc. (NYSE: CRM) purchased web-based provider Rypple.
Commenting over the deal, IBM’s senior Vice President, Steve A Mills said that the acquisition would help its customers to build a smarter and more connected staff that makes use of social media and other technology to “better tap the knowledge of its employees”.
Following the acquisition news, shares of Kenexa Corp. leaped more than 40%.
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