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Case Studies

Peter A. Sokoloff & Co. regularly analyzes transactions which occur within the industries covered. An archive of these case studies is kept online as a courtesy to our colleagues. To receive by e-mail new case studies as they are prepared, please e-mail [email protected] with your contact information.

Archives > Transaction Case Study #7

IBM Acquiring Micromuse

Dear Colleague,

Today's case study looks at IBM’s (NYSE:IBM) announcement that they entered into a definitive agreement on December 21, 2005 to acquire Micromuse Inc. (Nasdaq: MUSE). Micromuse is a provider of network management software used by banks, telecommunications carriers, governments, retailers and other organizations to monitor and manage their technology infrastructures. IBM is paying approximately $865 million in an all cash transaction ($10/share) to acquire the San Francisco based company that has more than 1,800 customers worldwide.

Micromuse’s stock price opened at $7.21 and closed at $9.92, an increase of 37.6% on the day of the announcement. IBM’s share price increased by less than one percent; nevertheless it was more than it agreed to pay for MUSE on the same day. IBM's enterprise value for MUSE, after MUSE's $141 million of cash (there is no debt) is approximately $724 million. The purchase price is 4.5x revenue of $160.8 million and 43x EBITDA of $16.8 million, based on the trailing twelve months. While the EBITDA multiple seems high, IBM is trading at an EBITDA multiple of about 39x.

IBM is paying a high price. That said, its annual revenue of $94 billion and a market cap of $130 billion means that the transaction's somewhat dilutive nature won't significantly impact IBM's bottom line. After the transaction is completed, Micromuse will operate within IBM's Tivoli software division, and its products will be incorporated into IBM's software and hardware offerings.

Micromuse’s software helps customers manage IT systems that support voice, video and data traffic delivered over the Internet. The combination of Micromuse’s software and IBM's IT service management technology is expected to provide customers with a comprehensive approach for reducing the complexity of their IT environments, lowering operational costs, and addressing compliance mandates. 

Al Zollar, General Manager, IBM Tivoli said “The combination of Micromuse and IBM Tivoli will help companies manage these sophisticated IT environments, deploy new business service management solutions, and deliver new network-based services to customers, employees and trading partners." 

Lloyd Carney, Chairman and Chief Executive Officer, Micromuse stated “IBM and Micromuse are dedicated to building software solutions that meet the demands of the industry’s most complex IT infrastructures. Together, we will help customers efficiently and effectively manage IT services in support of their business goals.”

The acquisition is subject to Micromuse shareholder and regulatory approvals and other customary closing conditions. It is expected to close in the first quarter of the 2006 calendar year.

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