IBM Nets FileNet for $1.6B

IBM has snapped up publicly traded software vendor FileNet for $1.6 billion in an all-cash transaction today, as the market for content management products heats up. (See IBM Buys FileNet.)

FileNet's flagship offering is its P8 platform, which is designed to let users manage a wide range of content, from forms to images and emails. The software also works with magnetic Write Once, Read Many (WORM) technologies from storage vendors such as NetApp, HDS, IBM, and EMC.

IBM already has a number of content management products within its own portfolio, including DB2 Content Manager and ImagePlus technology for handling document images.

Speaking on a conference call earlier today, Ambuj Goyal, general manager of information management at IBM, said that FileNet will eventually be integrated into his firm's content management business. Goyal also promised that IBM will "enhance" FileNet's investment in its current offerings, although he did not reveal roadmap specifics.

At least one analyst thinks today's announcement is very much a strategic play. "I think that IBM needed to increase its presence in the content management space, especially with the consolidation that is happening around EMC and Open Text," says Forrester analyst Colin Teubner.Content management specialist Open Text recently paid $489 million to acquire Hummingbird. FileNet is a direct competitor to Documentum, which was picked up by EMC for a $1.7 billion in 2003. (See EMC Cops Documentum, and Hummingbird Intros RedDot 7.0 .) Since acquiring Documentum, EMC has been filling in the gaps of its content management portfolio, and the firm's execs predict that the market will be worth more than $1 billion within the next two to five years. (See EMC Outlines Strategy, EMC Nets nLayers, Scopes Security, and Documentum Expands.)

EMC's recent acquisition of ProActivity, for example, was seen as a move to compete directly with FileNet in the BPM space. (See EMC Acquires ProActivity.) Documentum was also one of the high points in EMC's recent quarterly results. (See Tucci: EMC's Problems 'Self-Induced'.)

EMC sees no threat, at least none it will publicly acknowledge. "We can only benefit from the customary customer confusion that's associated with the merger of two companies with overlapping technologies," said Dave Farmer, a spokesman for EMC's software business.

According to IBM, FileNet's technology will bolster its Information on Demand initiative, which was launched earlier this year. The strategy essentially ties together a collection of different IBM products, such as DB2 databases and information management software, and offers them as a pre-packaged bundle to users.

Today's deal, however, could also extend IBM's reach in the security space, according to Aaron Rakers, enterprise storage analyst at A.G. Edwards. In a note released this morning, he said, "It is interesting to note that in Jun 06 FileNet announced a partnership with Decru (NetApp); potentially making for an even more meaningful relationship between IBM and NetApp."With significant overlap between the IBM and FileNet lines, it may take some time before the two portfolios can come together. "The question is, when will we see a unified content management platform that combines IBM's ImagePlus and FileNet's P8?" asks analyst Brian Babineau of the Enterprise Strategy Group.

IBM may already have at least one key piece it needs to get the integration done. Forrester's Teubner says IBM will likely use technology it acquired when it bought data management specialist Venetica back in 2004 to link FileNet's data repositories with its own. (See IBM Vouches for Venetica.)

It's unlikely that FileNet customers will see much disruption to their existing product support agreements. Announcing the deal during the most popular vacation month is also a shrewd move, according to Babineau. "The timing for M&A activity in August is always good, because it doesn't disrupt customers' field operations too much," he says.

Most of FileNet's 1,800 employees, including CEO Lee Roberts and president Ron Ercanbrack, are expected to move over to IBM when the deal closes in the fourth quarter of this year. "I think that the cultures of the two companies are very similar," said Roberts on today's conference call, adding, "It's our intent to keep all of our development centers."

In addition to two main development sites in Costa Mesa, California, and Kirkland, Washington, FileNet also has two smaller Canadian facilities in Vancouver, British Columbia, and Edmonton, Alberta.In trading today, shares of IBM rose 37 cents (0.49 percent) to $75.76. FileNet shares rose $1.29 (3.72 percent) to $35.94.

James Rogers, Senior Editor, Byte and Switch