IBM Purchases MRO Software

Last week IBM (IBM) announced the purchase of MRO Software (MROI), for an equity value of approximately $740mm. This is the largest software acquisition for IBM since the Ascential Software deal in April 2005.

Transaction Terms

Purchase Price: $25.80/share

Premium to Pre-Announcement Price: 19%

Enterprise Value: $586 million

Enterprise Value / FY 2006E Revenue: 2.6x

Price / FY 2006E EPS: 24x

Target: MRO Software

MRO Software provides software and services that allow corporations to manage the lifecycle of assets such as plant, equipment and IT systems. The vast majority of MRO's business is managing the lifecycle of non-technology assets. This clearly complements IBM's Tivoli business, which is focused on managing IT assets. MRO's core IT management product is their service desk offering, Maximo ITSM. However, the Maximo ITSM product set was released in 2005 and remains a very small business within MRO. MRO's business is service and support heavy, with 69% of total MRO revenues coming from those two categories.

Architect Partners Assessment

MRO is a somewhat surprising acquisition for IBM. Historically, IBM has focused on being a non-competitive partner to application vendors. MRO competes directly against the SAP's and Oracles of the world, albeit in a rather obscure category. This may signal a significant shift in strategy within IBM.

MRO does fill an obvious hole in IBM's IT management product set, an IT service desk product. Some have speculated that this was IBM's primary motivation for the acquisition. While this is a nice benefit, it makes for an expensive way to achieve the result.

IBM vs. MROI 1-yr chart: