International
Business Machines (IBM) said on Tuesday it would acquire web hosting
company SoftLayer Technologies and create a new division for clients
interested in so-called cloud services, a move to better compete with
larger rivals in the space.
Executives with IBM and SoftLayer declined to comment on the terms of the deal on a call with reporters.
Reuters
reported in March that IBM, among others, had been in talks to buy
SoftLayer in a deal that could fetch more than $2 billion.
Dallas-based
SoftLayer, which leases online storage space to companies, was founded
in 2005 and has become what it says is the world's largest privately
held website hosting service. The company provides its 25,000 customers,
including AT&T and Citrix Systems, with cloud infrastructure.
The company competes with Amazon's web services business and Rackspace Hosting.
Like
rivals Hewlett Packard and Microsoft, IBM has increasingly invested in
cloud services as corporate users move away from costly internal
information technology infrastructure.
IBM has
traditionally specialized in assisting large corporate and government
users but has been trying in recent years to expand into smaller
businesses.
Aiming big
But Erich
Clementi, senior vice president of IBM Global Technology Services, said
on a call with reporters that IBM is shooting squarely for the large
business segment with this acquisition.
"We are the largest infrastructure provider to the enterprise world on the planet," he said "That is our focus."
Over
the last few years, web hosting companies have been considered
attractive takeover candidates as technology and telecom companies look
to improve the performance and cost efficiencies of their cloud
computing services for businesses.
Wells Fargo
analyst Gray Powell estimated that the transaction was worth 11.1 times
SoftLayer's projected 2013 earnings before interest, taxes,
depreciation, and amortization.
That compares with Rackspace, which is currently trading at 11 times 2013 estimated Ebitda, Powell noted.
IBM
said it expected to gain $7 billion annually in revenue from cloud
services by the end of 2015. It created a new division called Cloud
Services, which will combine SoftLayer and IBM's existing offerings into
a global platform.
SoftLayer is majority held
by GI Partners, which purchased all of the equity in partnership with
the company's management in August 2010.
Data
storage equipment maker EMC had been approached about SoftLayer as well.
An EMC spokesman said on Tuesday, "EMC was initially approached,
uninterested and decided not to bid."
IBM said it expected the deal to close in the third quarter. Shares of IBM were down about 1% at $206.78.
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