A Big Data Hungry IBM Buys i2 and Algorithmics

September 12, 2011 Timothy Prickett Morgan

With the exceptions of Lotus and Cognos, IBM doesn’t like to do large acquisitions of software companies. Big Blue likes to acquire niche specialists that have made it out of startup mode and have established a few hundred to a few thousand customers that could use the immensitude of IBM’s partner channel and direct sales force. While The Four Hundred was on hiatus, IBM snapped up two such software companies, each with its own industry-focused twist on big data.

On August 31, IBM paid a rumored $500 million to acquire i2, a British software company with a specialty in crime and fraud prevention analytics that was established in Cambridge, which is just outside of London, and now has its headquarters in McLean, Virginia, close to the Department of Homeland Security, the Central Intelligence Agency, and the National Security Agency. i2, which is not to be confused with the supply chain management software company that is now part of JDA Software, was founded in 1990 by two British intelligence analysts who wanted to automate the profiling and investigation work that was done largely on paper. The resulting system, called the Analyst’s Notebook, is used by over 150,000 users, including intelligence, military, and police officers; the fraud detection units at major retailers and financial institutions; and the security operations of major corporations. i2 has over 4,500 organizations using its software in 150 countries around the world; the software is available in 17 different languages.

IBM anticipates that the i2 deal will close in the fourth quarter. The company has 350 employees who work in the McLean headquarters as well as in Tucson, Arizona; Ottawa, Ontario; and Canberra, Australia. The company will be integrated with the Software Group behemoth and will no doubt be plugged into IBM’s Smart Analytics Systems and BigInsights Hadoop data crunching systems.

Only a day later, on September 1, IBM got another $387 million out of its wallet and bought another software company called Algorithmics, a division of the French software company called Fimalac that also owns the Fitch Ratings credit rating agency. Algorithmics, which was founded in 1989, was bought by Fitch Group, the parent company behind the ratings agency, for $175 million. At the time, Algorithmics had 150 customers using its financial risk management software, which is called Algo Suite and which was created in response to the 1987 stock market crash.

Algorithmics now has 800 employees and the Algo Suite has a whopping 24 modules that assess credit risk, liquidity, and other complex financial calculations relating to risk and creditworthiness. Most of the top banks and insurance companies in the world use its risk analysis and credit software; it had more than 350 customers at the end of 2010 and generated $163.7 million in revenues and an operating loss of $10.3 million in the fiscal year ending in September 2010, according to Fimalac.

IBM expects the Algorithmics deal to close in October and that it will tuck the unit into Software Group, merging the Algo Suite with the predictive analytics it got through its purchase of SPSS and the risk management applications it acquired a year ago when it snapped up OpenPages.