Big Blue dials up a deal with Ma Bell

Contact: Brenon Daly

Sterling Commerce has had one of the more colorful and varied ownership histories in the software industry. Founded inside parent company Sterling Software, the business-to-business software vendor was then spun off through an IPO in the mid-1990s before being acquired by SBC Communications (now AT&T) in a Bubble-era deal that valued Sterling Commerce at $3.9bn.

For the past decade, it has been a largely unknown business inside Ma Bell. Although Sterling Commerce generates sales in the hundreds of millions of dollars, it amounts to less than 1% of AT&T’s revenue. AT&T doesn’t break out the financials for Sterling Commerce, but instead lumps the sales into a catch-all bucket of ‘Other.’  To give some idea of the importance of that category, consider that AT&T also accounts for revenue from its pay phones in Other.

We always assumed that some buyout shop would carve out the Sterling Commerce business from the phone giant and use it as a platform to roll up the fragmented business software landscape. (Sterling Commerce had done a few deals of its own, including its $155m purchase of order configuration vendor Comergent Technologies in November 2006.) Instead, Sterling Commerce said Monday that it will now be part of IBM.

Big Blue, which was advised by JP Morgan Securities, is paying just $1.4bn in cash for Sterling Commerce. The transaction, which is expected to close in the second half of 2010, is the largest by IBM in two and a half years. It also comes just weeks after Big Blue announced that it will look to once again be a busy buyer, indicating that it plans to spend $20bn on deals over the next five years. While that figure roughly matches the amount that IBM has spent on M&A over the previous half-decade, the majority of the spending was concentrated in 2005-07.