IBM to pay $1.6 billion for FileNet

FileNet is a publicly traded company based in Costa Mesa, Calif., with an annual revenue last year of nearly $422 million. The 24-year-old company is one of the largest specialists in content and document management software sold to large corporations.

IBM said that it will integrate FileNet's products with its own content-management software developed in its Information Management division, which is led by general manager Ambuj Goyal.

In addition, IBM said it will seek to combine FileNet's content-management software with its business process management tools for automating complex business workflows.

The acquisition price of $35 per FileNet share is only a slight premium over the closing price of FileNet's stock on Wednesday.

In a statement, FileNet CEO and Chairman Lee Roberts said the deal "offers FileNet shareholders a solid premium over historical trading prices of our stock."

The transaction is expected to close in the fourth quarter.

The acquisition comes only one week after IBM's software division spent $740 million to buy MRO Software, which makes applications for managing physical assets, such as plants and refineries. IBM also purchased privately held Webify Solutons last week.

Folding FileNet into IBM underscores the rapid consolidation happening in the business software market. IBM's software group has bought more than 50 companies in the past 10 years.

In particular, the largest software companies, including IBM, Microsoft and Oracle, are expanding their product portfolios into content management for businesses.

AMR Research analyst Jim Murphy said that there is significant overlap between IBM's content management products and those from FileNet, which are used by companies in the insurance and financial services industries for storing digital images and records.

As such, the acquisition was done mostly to gain access to FileNet's customers, to whom IBM can sell hardware and services as well as software, he said.

"It's a customer acquisition and a competitive acquisition," Murphy said. "Arguably you have the No. 2 content management vendor taking the No. 3, allowing IBM to focus on competition with Oracle. I can't think of a technology reason to do it."

Murphy said that the largest content management vendors are IBM, FileNet, OpenText and Documentum, which was acquired by EMC.

He added that standalone content management companies are getting more competition from database companies including IBM, Oracle and Microsoft. Also, many corporate customers are seeking to purchase content management systems from their infrastructure software vendors.

"This leaves a company like FileNet in a difficult position," Murphy said.