NEW YORK (Reuters) - IBM offered to buy data analytics company Netezza Corp for $1.7 billion, the latest deal to emerge from a recovering tech sector, to expand its technology services business and help clients better analyze market information.
Monday's announcement comes as International Business Machines Corp is shifting its focus from increasingly commoditized hardware to higher-margin software and services, particularly analytics, which help clients analyze market data to plot trends or prevent fraud.
The deal values Netezza at $27 per share, a 9.8 percent premium from Friday's closing price of $24.60.
The stock rose 15.2 percent to $28.50 late Monday afternoon, with some analysts saying a rival bidder could emerge considering the recent surge in technology acquisitions. The deal also raised speculation that other data analytics firms such as Teradata Corp could be targeted next.
The deal is the latest in a rash of acquisitions in the technology sector. Last month, Intel Corp agreed to buy McAfee Inc for $7.7 billion. This month, Hewlett-Packard Co agreed to pay $1.5 billion for security firm ArcSight.
Marlborough, Massachusetts-based Netezza sells appliances that combine analytical software and hardware to help, for example, online dating site eHarmony comb through online profiles and massive Web data to figure out who might be a good match for a particular user.
Other customers include retailers as well as financial exchange operator NYSE Euronext.
IBM said the speed of Netezza's technology had convinced it to buy the company. The two are partners, with Netezza using IBM hardware.
"Speed is critical," said Arvind Krishna, general manager of information management at IBM. "Clients don't have the patience to wait for weeks."
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He said analytics, which accounted for about $9 billion of IBM's $95.76 billion in revenue last year, was a significant growth opportunity for the company. IBM employs 6,000 analytics consultants, while Netezza has 500 employees.
The deal also comes amid a resurgence in mergers and acquisitions activity. Last month saw an unseasonable burst of deal making, with Thomson Reuters data showing total announced deals of $262 billion, the highest for an August since 1999.
Analysts have said this could continue, helped by low interest rates, record cash holdings and low stock market values.
Another trend driving deals in technology is the ambition among large vendors to become one-stop shops selling everything from networking and servers to software and services.
IBM said in May that it planned to spend about $20 billion in acquisitions through 2015 to expand its software and services business.
IBM's top rivals include Hewlett-Packard, Oracle Corp and Cisco Systems Inc, all of which have announced new services and acquisitions in an effort to offer a broader set of technology services to clients.
Analysts also said the deal could spark interest in other data analytics companies including Teradata and smaller, privately owned firms such as ParAccel and Vertica. Teradata shares were up 7.8 percent at $37.14.
Given the recent, heated bidding war between HP and Dell Inc over data storage company 3PAR Inc, they said, a rival bid could emerge for Netezza as well.
"As such, we recommend investors to keep their position rather than sell with the idea that another bidder may appear," said Roth Capital Partners analyst Nathan Schneiderman.
Veteran technology banker Frank Quattrone's Qatalyst Group advised Netezza while UBS AG advised IBM, according to a source familiar with the situation. Quattrone had also advised 3PAR.
Jayson Noland, an analyst at Robert W. Baird, said companies such as Dell, HP, NEC Corp and SAP AG could be interested in Netezza, although they may have already discussed a possible deal with bankers and decided not to make a move.
Netezza, which also makes data warehouse and monitoring equipment, reported fiscal second-quarter revenue of $63.8 million last month, up 45 percent from a year earlier. It also raised its full-year revenue forecast, a rare move in a sector fretting about a possible double-dip in technology spending.
Many of IBM's recent acquisitions have been small, low-key deals. Chief Executive Samuel Palmisano said last week that IBM buys companies at "reasonable valuations" and criticized HP's $2.4 billion acquisition of 3PAR as well as its $1.5 billion deal to buy security technology company ArcSight Inc.
IBM's offer for Netezza values it at over six times its expected revenue for 2010, a healthy valuation in the tech industry where anything over 5 is considered high, but lower than the multiple of around 9 times that HP offered 3PAR.
IBM shares were up 1.36 percent at $131.96.
The companies said they expected the deal to close in the fourth quarter. The merger agreement includes a termination fee of $56 million, according to a regulatory filing.
(Reporting by Ritsuko Ando and Nadia Damouni; Additional reporting by Liana B. Baker; Editing by Lisa Von Ahn, Andre Grenon and Richard Chang)