IBM Looks To Dominate Content Management Market With FileNet Buy

IBM said Thursday it will pay about $1.6 billion in cash, or $35 per share, to acquire FileNet Corp., a Costa Mesa, Calif.-based developer of content and business process management software.

The move is an effort by IBM to bolster its presence in the lucrative market for products that help companies capture, process, and act on critical business information.

FileNet's main products include Content Manager, which allows users to more easily store and manage digital content; Email Manager, designed to help businesses deal with ever-increasing volumes of electronic messages; and Records Manager, software that can help companies in regulated industries comply with government regulations.

FileNet's customers include Amerada Hess, Citigroup, and Mutual of Omaha. The company posted revenues of $421.8 million in 2005.

FileNet's content management backbone is its P8 platform, which competes with IBM's Content Manager software. IBM executives say IBM will continue to develop both platforms."We'll continue to invest in the FileNet infrastructure," says Jon Prial, IBM's VP for enterprise content management. Under IBM, FileNet will also continue to work with partners that happen to be IBM rivals, including Hewlett-Packard and BEA Systems. "This is about the information, not the underlying systems," Prial says. The FileNet brand identity will live on within IBM, he adds.

IBM will add FileNet's operations to its Information Management unit, led by general manager Ambuj Goyal. It also plans to train IBM and FileNet partner and services teams on both IBM and FileNet technology.

Some observers believe the acquisition most immediately boosts IBM's position against storage vendor EMC Corp., which has been looking to reduce its reliance on hardware sales by emphasizing add-on products such as content management and information lifecycle management software. In these areas, "EMC has been ahead of the curve" compared to IBM, says Chris Foster, an analyst at Technology Business Research.

Forrester Research estimates that the market for enterprise content management software is growing at 19% per year and will reach $3.9 billion by 2008.

IBM's acquisition of FileNet is its latest in a string of purchases of data and information management software companies that began in 2004 with the buyout of Venetica. Last year, IBM acquired Ascential Software, a maker of data integration products, for $1.1 billion.IBM's Prial says the moves, including about a dozen smaller acquisitions, reflect what IBM customers want--access to critical content on demand. "To unlock all this information, you need to get access to it," he says.

IBM says it expects the deal to close in the fourth quarter of 2006, subject to shareholder and regulatory approvals.

IBM shares (NYSE:IBM) were flat in early trading Thursday, while shares of FileNet (NasdaqGS:FILE) were up 2.05% to $35.36.