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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 #16

IBM to acquire Internet Security Systems, Inc.

Dear Colleague,

On August 23, 2006, IBM (NYSE: IBM) announced it has entered into a definitive agreement to acquire Internet Security Systems, Inc. (NASDAQ: ISSX), in an all-cash transaction at a price of approximately $1.3 billion, or $28 per share.

Internet Security Systems (ISS) provides security solutions on a worldwide basis to enterprise and governments. ISS software, appliances and services, monitor and manage network vulnerabilities and rapidly responds in advance of potential threats. This acquisition advances IBM's strategy to utilize IT services, software and consulting expertise to automate labor-based processes into standardized, software-based services that help clients optimize and transform their businesses. The acquisition is an important addition to IBM's security and privacy services business. ISS will join IBM as a business unit within IBM Global Services' Security organization. The two companies have had an existing business relationship since 1999.

The day of the announcement, ISS’s price per share closed at $27.77, $1.62 higher than closing the day before. Rumors of a deal with IBM had been circulating since July, resulting in a gradual run up in price from a floor of about $18 per share. Based on Enterprise Value, the transaction is about 3.2x revenue and 13.8x EBITDA based on ISS’s trailing twelve months with revenue of $337.35 million and an EBITDA of $78.11 million. The acquisition is subject to Internet Security Systems, Inc. shareholder and regulatory approvals and other customary closing conditions. The transaction is expected to close in the fourth quarter of 2006.

"Companies recognize that rapidly evolving security threats and complex regulatory requirements have turned security into a mission-critical priority," said Val Rahmani, General Manager, Infrastructure Management Services, IBM Global Services. "ISS is a strategic and valuable addition to IBM's portfolio of technology and services. This acquisition will help IBM to provide companies with access to trained experts and leading-edge processes and technology to evaluate and protect against threats and enforce security policies."

Tom Noonan, President and CEO of ISS said, "Clients increasingly recognize that security must become a network-integrated business process rather than a reactive response to individual threats. By delivering an integrated security platform that is adaptable and extensible to address new threats and business requirements without incremental complexity and cost, ISS has delivered the foundation for delivering security as a service. These on-demand capabilities, together with our managed security services, appliances and software will further bolster IBM's leading security services and products as we take this innovation out to a larger, global stage."

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