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Deborah Magid Director of Software Strategy IBM Venture Capital Group

IBM Mergers and Acquisitions: Growth through External Innovation. Deborah Magid Director of Software Strategy IBM Venture Capital Group. IBM GTU Annual VC Event. November 6, 2006. Innovation that Matters is Innovation Applied. Aspects of innovation Product Process Business Model

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Deborah Magid Director of Software Strategy IBM Venture Capital Group

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  1. IBM Mergers and Acquisitions: Growth through External Innovation Deborah Magid Director of Software Strategy IBM Venture Capital Group IBM GTU Annual VC Event November 6, 2006

  2. Innovation that Matters is Innovation Applied • Aspects of innovation • Product • Process • Business Model • Societal • Attributes of innovation • Open • Collaborative • Multi-disciplinary • Global

  3. Software Venture Capital1995 – 2006 Investments 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 1H06 $1.1B $2.3B $3.4B $4.5B $10.4B $24.1B $10.3B $5.2B $4.4B $5.2B $4.8B $2.7B Source: PricewaterhouseCoopers Money Tree Report, pwcmoneytree.com

  4. M&As Remain Primary Exit OptionPercentage Breakdown of Venture Backed Liquidity Events: IPO vs. M&A YTD06*: 1Q06 – 3Q06

  5. IBM Software Group Acquisition Strategy • Since 1995, IBM SWG has acquired 57 companies including three of its premier brands -- Tivoli, Rational and Lotus. • In the last three years, IBM has acquired 30+ companies, investing about $10B. • We develop a business strategy first, then make acquisitions to complement the strategy. • Our goal is to offer complete solutions to our customers. • So, we need a broad portfolio. • To broaden our portfolio we "build, partner, and buy." • To "buy" we look for ready-made assets that we can use with multiple customers. • This strategy is global. • The combination of software and services is increasingly important. • E.g., ISS, Webify • We have made recent acquisitions to boost our growth plays. • Information on Demand • SOA • High-end middleware integration and systems management.

  6. Why buy? • We acquire to: • expand our range of offerings • gain share in existing markets where we compete • enter new markets with a strong offering • drive growth by adding new revenue streams • get a jump-start into emerging markets • obtain specific technologies that can help round out our portfolio • We seek to gain an edge in innovation and to bring innovative people into the fold -- so that innovation continues.

  7. How to succeed in M&A • Deal Flow: • Alliances, trade shows, industry press, relationships • Venture Capital relationships • Rationale: • the right assets • the right technology • the right sales and marketing organization • the right culture • How do you know these things? Partner first! • Integration: • Transition teams • Speed • Taking care of people • Going to market quickly • We have been able to smoothly integrate these firms into IBM's operations, whether major acquisitions like Rational and PWCC, or the dozens of smaller firms we've acquired.

  8. Financial Investment in Acquisitions – IBM-wide • 2006 • 13 acquisitions totaling $4.7 billion (gross purchase price, i.e. includes excess cash) • 10 software • 2 services • 1 Systems & Technology • 2005 • 16 acquisitions totaling $2.022 billion • 10 software • 5 services • 1 hardware • 2004 • 14 acquisitions totaling $2.111 billion • 6 software • 8 services • 2003 • 9 acquisitions totaling $2.536 billion • 6 software • 2 services • 1 hardware • 2002 • 12 acquisitions totaling $3.96 billion • 6 software • 6 services (including PWCC) • 2001 • 2 acquisitions totaling $1.1 billion • 1 software (Informix) • 1 services

  9. Tivoli

  10. Rational

  11. WebSphere

  12. Lotus

  13. Information Management

  14. The IBM VC Program in action:Influencing the Information on Demand Strategy • IBM prepares for the next generation of the Information Management business. • IBM product and strategy executives survey the landscape. • Information management, content management, enterprise search, and text analytics are becoming more important. The business intelligence market is evolving, too. • New capabilities are rapidly being introduced by entrepreneurs funded by VC’s. • VC’s influence the strategy. • IBM VC Group arranges individual briefings and roundtable discussions with high profile VC’s and portfolio companies from around the globe • VC’s provide insight into external innovations, feedback on IBM Information Management plans, and suggestions for new partnerships. • IBM VC Group also provides industry analyses and suggestions for additional partnerships with innovative entrepreneurs.

  15. The IBM VC Program in action: Executing the Information on Demand Strategy • As the strategy is executed, portfolio companies are included in new initiatives, events, and product announcements. • Attensity, introduced by Jefferson Partners, brings text analytics to IBM’s Omnifind customer, Whirlpool. • SchemaLogic, funded by Madrona, adds a meta-information framework to WebSphere Information Integrator. • ClearForest, introduced by Pitango, delivers their first UIMA compliant solution. • Endeca, introduced by Venrock, and delivering value to ibm.com users, is a sponsor of IBM’s Information On Demand 2006 Conference and Expo. • The business decision is made to move core capabilities from external partners into IBM product lines. VC-backed companies are acquired. • Alphablox, introduced by Accel Partners, is purchased to wrap analytics into IBM Workplace. • iPhrase, introduced by Charles River Ventures, is purchased to deliver contextual search as WebSphere Content Discovery Server. • Unicorn Solutions, introduced by Jerusalem Global Ventures, adds Semantic Information Management to WebSphere Information Integrator.

  16. The IBM VC Program in action: Taking the Information on Demand strategy to the next level • IBM VC Group continues to host VC meetings for pre-briefings, insight and feedback. • Real-time information and data security become key, so new portfolio companies are introduced. • StreamBase, introduced by Bessemer Venture Partners, joins the IBM PartnerWorld Industry Networks for Banking, Government, and Telecommunications. • Tizor, introduced by Hummer-Winblad, joins the Data Governance Board. • The cycle continues…!

  17. What is the next big thing? “Build, Partner, Buy” strategy for SOA • Real Time • Web 2.0 • Composite applications, industry vertical middleware • Governance • E-commerce middleware • Emerging geographies • Telecom and Financial Services verticals

  18. Venture Capital investment is key to IBM’s acquisition strategy • Innovation, invention and entrepreneurship • The next generation of ecosystem • New business models • New technologies • Emerging markets • Emerging geographies The future of our industry!

  19. ibm.com/VentureCapitalGroup Deborah Magid dmagid@us.ibm.com

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