ADP Automatic Data Processing Inc

International Business Machines Corp. (IBM) recently announced that it is all set to acquire privately held Emptoris Inc., a leading developer of supply and contract management software. Although the financial terms were not disclosed, the acquisition is expected to be completed by the first quarter of 2012.

Based in Burlington, Massachusetts, Emptoris’ solutions include cloud-based and on-premise analytical tools that specialize in procurement and supply chain operations. The Emptoris acquisition also complements IBM's supply chain management business process outsourcing services, offered through IBM's Global Process Services organization.

Emptoris solutions cater to a number of industries including consumer products, financial services, healthcare, telecommunications, chemical/oil/gas, utilities, construction and industrial manufacturing. Emptoris possesses a strong client base of more than 350 customers including the likes of American Express Co. (AXP), Automatic Data Processing Inc. (ADP), Kraft Foods Inc. (KFT) and Samsung America.

The acquisition is a part of IBM’s “smarter commerce” initiative, which seeks to help businesses adapt to shifting customer buying patterns. Emptoris is IBM’s second acquisition this month and fifth acquisition in a span of three months. Previously, in the first week of December, IBM announced the acquisition of DemandTec Inc., a cloud-based analytics solutions provider.

IBM launched its Smarter Commerce initiative in March 2011 to capitalize on what the company sees as a $20.0 billion market opportunity and has pursued accretive acquisitions in order to realize this opportunity. The recent acquisition is expected to expand IBM's Smarter Commerce portfolio, complementing its business-to-business integration and supply chain management capabilities going forward. IBM forayed into the supply chain management segment with the $1.4 billion acquisition of Sterling Commerce in 2010.

IBM expects the acquisitions to be incrementally beneficial for the company in reaching its 2015 goals. IBM's growth initiatives, such as smarter planet and industry frameworks, growth markets, business analytics, and optimization and cloud computing have driven significant growth and generated high profit margins for the company. These initiatives are expected to deliver at least $50 billion in revenues by fiscal 2015.

Moreover, the company expects to generate smarter planet and business analytics revenues of $10.0 billion and $16.0 billion, respectively, by 2015. Additionally, cloud computing is expected to deliver revenues of $7.0 billion by 2015.

We believe that the strong cash balance enables IBM to acquire companies with the intellectual property required to drive further growth for the company. With $20 billion to spend till 2015 on acquisitions, we expect IBM to continue with its strategy. In the process, IBM would expand its product portfolio and increase its global scale.

We have a long-term Neutral recommendation on IBM. Nonetheless, we are optimistic about its strong fundamentals and robust growth prospects going forward. We therefore have a Zacks #2 Rank for IBM, which translates into a short-term ‘Buy’ rating.

 
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