International Business Machines Corp. will buy software company Apptio for $4.6 billion, marking the seventh acquisition this year as Chief Executive Officer Arvind Krishna pushes the company’s transformation into a hybrid-cloud and artificial intelligence business.
IBM will use available cash on hand for the transaction, which is expected to close in the latter half of 2023, the company said in a statement on Monday. Apptio is currently owned by private equity firm Vista Equity Partners, which bought it for $1.9 billion in 2019.
Apptio, founded in 2007, sells online services that, among other things, help companies manage their information-technology budgets, forecasting and analysis. The majority of Fortune 100 companies use its products, according to the company’s website, which lists Bank of America Corp., Cargill Corp. and Chevron Corp. among its clients.
Krishna, who took charge in 2020, has continued to shake up the 112-year-old company. After the acquisition of software developer Red Hat in 2019, IBM split off its IT infrastructure and data center management business Kyndryl in 2021 and then divested part of the Watson Health division.
Krishna has pushed the company on an M&A spree, buying more than 30 companies to bolster IBM’s cloud and IT automation offerings.
Krishna said last month that IBM is still looking for deals but that any acquisitions would likely be smaller than the $34 billion Red Hat purchase. IBM is focused on acquisitions in hybrid cloud and artificial intelligence automation, the CEO said, citing the 2021 purchase of Turbonomic Inc. as an example. Cybersecurity is another area of focus for investment, Krishna said.
“Smart move by the CEO to add more software revenue to the overall sales mix,” said Bloomberg Intelligence analyst Anurag Rana. Apptio fits well with IBM’s hybrid cloud strategy, which is led by Red Hat, he said. IBM is also “one of the few large tech companies that can actually get a deal done in this environment, as regulators scrutinize any move by the bigger firms.”
IBM and Apptio have collaborated before, including a 2021 agreement to help clients improve their hybrid-cloud technology decision-making process.
“We have known them for a couple of years,” Krishna said in an interview. “Then at some point you begin to ask yourself the question, ‘Are we better off together than just being partners?’”
Krishna said companies’ decisions about where to store data will become more pressing as they deploy more AI workloads and have to make expensive choices about whether to train and run complex mathematical models on cloud services such as Microsoft Corp.’s Azure or Amazon.com Inc.’s AWS, or distribute them across private data centers.
For businesses, cost consideration is “really important because AI will be new workloads that exercise all of this to the extreme,” Krishna said.
The Apptio sale is a rare private equity exit at a time when such activity has fallen considerably. Vista said in the four years that it has owned Apptio, the company has doubled revenue and increased margins on earnings before interest, tax, depreciation and amortization by more than four times. Apptio’s customer base expanded more than three times and it made a series of acquisitions including Cloudability in 2019 and Cloudwiry in 2022, according to Vista.
IBM shares were up less than 1% in New York to $130.48. The shares are down about 5% this year.
--With assistance from Jesse Levine.
(Updates with opening shares)