IBM Buys Other Half of Informix with Ascential Acquisition

by Timothy Prickett Morgan

Four years ago, in April 2001 to be precise, IBM bought the relational database business from the former Informix for $1 billion in cash and boosted its market share in the database market in one fell swoop. Four years later, IBM is paying $1.1 billion in cash to buy the other part of Informix, which is known as Ascential Software and which sells data transformation and integration software.

Back in 2001, $1 billion in cash was a lot to spend for the Informix database business, which posted sales of around $800 million at what was probably around breakeven in 2000. The $1.1 billion price that IBM is paying for Ascential is still pretty high, considering the company generated $272 million in sales in 2005 and only made a profit of $6 million. In the prior year, Ascential lost $13 million on $186 million in sales, and in 2002, its first full year out of the database business, the company sold $113 million in data transformation and management software and related services, but it lost $106 million. But because Ascential got to keep the original $1 billion IBM paid for the Informix database products, even with those losses, Ascential had $481 million in the bank as cash and short-term investments. With its sales growing about 20 percent year-on-year, Ascential was probably looking at perhaps having sales of around $325 million in 2005, but probably with modest profits because even though Ascential is an 800-pound gorilla in this area of the database and data warehousing tools market, there are other players, such as Informatica, that are chasing the money. All of these factors were more or less already in the Ascential stock price, and IBM only ended up paying about a 15 percent premium over the market capitalization of Ascential prior to when the deal was announced, and when you factor in that load of cash, IBM's reckoning of what Ascential was worth before the deal was announced was in the neighborhood of $440 million, with a premium of $176 million (that's the 15 percent over the original market cap) on top of that.

The two main jobs that the tools of these vendors do is to cleanse production data of errors and redundancies and then load it from the production databases into data warehouses. Ascential, thanks to the original $1 billion in cash from IBM in the Informix database deal, went from a respected player to a feared player with deep pockets in the data transformation, data extraction and loading, and data cleansing areas.

Informatica, which has been jousting with Ascential for the top spot in this market for years, is putting the best face forward on the IBM-Ascential deal. "A vendor-specific data integration offering may be favored by those customers needing to standardize on a single software provider, but will not address the requirements for open, best-of-breed software from the broader marketplace," the company said in a statement, adding that it was committed to its relationship with IBM and tightly integrating Big Blue's DB2 database with its PowerExchange tools. As Informatica, Ascential, and IBM well know, by acquiring Ascential, IBM has anointed Informatica as the largest pure-play data integration/cleansing player in the market. How much value this has in the long run remains to be seen.

It is not difficult to see that any major database player--for example, Oracle and Microsoft--would be interested in snatching up Informatica now that IBM has bought Ascential. And you can expect the talk on Wall Street over the next few weeks to be about who is going to shell out the $700 million to $1 billion (that's my guess) that will be needed to acquire Informatica, which has a market cap of around $680 million as we go to press and which had $241 million in cash and equivalents in the bank as 2004 drew to a close. Microsoft has the money, but may not be interested, and Oracle may be interested, but has just blown $10.3 billion on PeopleSoft and is has just spent another $631 million after a bidding war with SAP over the acquisition of retail ERP software specialist Retek.