IBM has offered to buy Telelogic, a Swedish developer of software development tools, in a cash deal valued at 5.2 billion Swedish krona, or about $745 million (£378.3m), the companies announced.
IBM plans to make Telelogic a part of its Rational tools division, the companies said. Telelogic makes products for managing complex software development projects, a category known as application lifecycle management. It also has tools for business process management and other areas.
Telelogic is advising its shareholders to accept the offer of 21 krona per share, which it said is a premium of 21% over Telelogic's closing share price on 31 May, when speculation about a potential takeover of the company began.
Combining with IBM would allow Telelogic to expand worldwide and offer a more complete set of products for complex software development, Telelogic Chairman Bo Dimert said. The offer requires approval from competition authorities as well as from Telelogic's shareholders. IBM said it made the offer through a wholly owned subsidiary in Sweden.
The purchase makes sense for IBM as it continues to strengthen its software development portfolio beyond the traditional IT space, said Danny Sabbah, general manager of IBM's Rational Software division. IBM particularly sees growth in software embedded in complex products, such as automobiles, consumer electronics, and military equipment, he said during a press conference.
"IBM's acquisition of Telelogic serves to accelerate the innovation of products that rely on software," he said. "This kind of complex system development often includes embedded software development."
Telelogic has about 8,000 customers, mostly in the aerospace, defense, telecommunications and electronics industries, according to an IBM statement posted on Telelogic's Web site.
Offering an example of how the two companies' products might be used together, IBM said an electronics vendor might use their software to design a smart home network for consumers that can control entertainment equipment, security systems and lighting.
The marriage of the two companies offers "great potential," said Bola Rotibi, principal analyst at Ovum. The acquisition strengthens IBM's embedded development capabilities, which had lagged behind some competitors, she said.
The purchase shores up some IBM capabilities in the application lifecycle area, she added. "IBM has wanted to put something together to address the field of enterprise architecture but so far has only managed to talk about it through its architectural management vision," she said. "Telelogic purchased System Architect, the leading enterprise architecture tool about 18 months ago – problem fixed for IBM."
IBM is increasingly focused on software for its growth, Sabbah said. In the last five years, IBM has spent about $16 billion to acquire more than 60 companies, he said. The Telelogic acquisition is the fifth by IBM's Rational division since IBM acquired Rational in 2003.