IBM plays small ball in big market

Contact: Ben Kolada, Vishal Jain, Chris Hazelton

After a streak of batting in the majors, Big Blue recently took a swing in the minor leagues. The company’s recently announced pickup of Worklight is one of the smallest deals it has announced in more than two years. (In fact, Worklight’s $70m price tag is a fraction of the estimated $475m that IBM has spent on average for its acquisitions since the beginning of 2010.) Nonetheless, it’s a handsome price for a small company, and is indicative of the premium that acquirers are willing to pay for technologies that cover the entire scope of mobile app lifecycle development and management.

According to our understanding, Big Blue’s offer gives Worklight a boisterous valuation of 20-30x trailing sales. Why the sky-high valuation? Basically, as the PC era diminishes, IBM felt pressure to prop up its existing enterprise offerings for mobile clients. Faced with the extent of fragmentation, both on the client and back-end services side, IBM saw Worklight as key to the missing pieces in its puzzle. Worklight completes Big Blue’s coverage of HTML5 frameworks, brings single-code-based development, and provides encrypted local device storage as well as cross-platform publishing and packing capabilities.

Beyond its implications for IBM, the transaction is another example of a longer-term trend we’re seeing in mobile app lifecycle management. In our 2012 M&A Outlook – Mobility, we noted that enterprises need a platform that can manage their entire app development life cycle right from development and through to deployment and maintenance. Larger enterprises that have typically used mobile enterprise application platforms will eye app development firms or agencies in their quest to take control of mobile app development. These acquisitions would be similar to ones closed by Antenna Software, Deloitte, Financial Times, VeriFone and Wal-Mart in 2011.