Is IBM about to ‘initiate’ a major MDM purchase?

Contact: Brenon Daly

Although we recently noted that SAP may be considering a major master data management (MDM) move, we understand that the next buyer in the market may actually be IBM. We’ve heard from several sources that Big Blue is close to announcing an acquisition of Initiate Systems. If the deal does indeed happen, Initiate would substantially boost IBM’s offering for the healthcare industry. Despite being competitors, Initiate and IBM Global Services have been longtime partners for healthcare projects. The transaction could happen as soon as this week, we’re told. And we gather that it’ll come at a rather rich valuation for Initiate.

One of the largest stand-alone MDM vendors, Initiate filed to go public back in November 2007, but withdrew its IPO paperwork the following summer. (Goldman Sachs was lead underwriter of the planned offering.) Shortly after it pulled its prospectus, it announced a $26m funding round that included strategic investments from both EMC and Informatica. However, we hear that the biggest competition for IBM’s rumored bid for Initiate may have come from the public market.

Given the very real prospect that Initiate could reheat its plans to go public, IBM would effectively have to top the valuation that Initiate could receive in an IPO and afterward. We understand that the company was running around breakeven and likely did just shy of $90m in 2009. (That would imply mid-teens growth from the $76m in revenue that Initiate recorded in 2008.) With that dynamic at play, Initiate may well garner 4.5-5x sales in the trade sale to IBM, according to sources.