There was a rather dramatic but not unexpected announcement today concerning supply chain technology. IBM has entered into a definitive agreement to acquire Sterling Commerce from its current corporate owner AT&T. The deal, which is expected to close in the second half of 2010, calls for an all-cash transaction of $1.4 billion, and AT&T anticipates recording a one-time $750 million gain in the quarter in which the transaction closes. SBC Communications, which later became AT&T, originally acquired Sterling in 2000 at the near height of the B2B Internet era for $3.9 billion in stock.
Supply Chain Matters first take at this acquisition is a mixed one, and that is why we chose to utilize the word ‘dramatic’. Sterling customers gain the deep pockets and reputation of IBM, one of top global IT providers. But at the same time, certain flexibilities in the use and deployment of B2B integration components surrounding Sterling applications may become more proprietary over time as IBM introduces the complete array of WebSphere integration components. Sterling integrators, particularly those with broader supply chain advisory services may also be impacted over time, since IBM has its own professional and industry focused business services teams.
Our most recent coverage of Sterling Commerce was a mere few weeks ago attending the Sterling Customer 2010 Customer Connection Conference. In a summary impressions posting, I noted that thinking out of the box, a more leveraged use of supply chain technology will be rather important in navigating into this next post-recessionary era, and that Sterling and its partner network are listening and responding to customer needs for supply chain agility. Today’s announcement can either accelerate or detract from that mission.
The history of Sterling Commerce is a rather interesting one and reflects a company built around acquisitions. The genesis of the company comes from its original EDI and B2B transaction integration business. Acquisitions of WMS and order fulfillment provider Yantra in 2005, and TMS provider Nistevo in 2006 were added, and as noted, the company has been operating as a subsidiary of AT&T for about ten years. At its recent customer conference, Sterling announced new cloud computing options in support of its various multichannel order fulfillment applications, an announcement that will no doubt take on a more IBM focus.
IBM’s WebSphere group is the actual acquirer of Sterling. In a written statement, Craig Haymen, General Manager of the WebSphere unit notes that this acquisition will give IBM new tools to help clients build more dynamic business networks and a more consistent customer experience across channels. IBM stands to gain the more than 18000 current Sterling customers, and as we noted in April, some of the most visible and prominent names within the retail industry. Following the close, approximately 2500 Sterling employees will be integrated into the WebSphere organization. Supply Chain Matters readers may also recall that this same IBM division had also acquired the former supply chain technology group of ILOG, providing business rules engine, multi-echelon inventory optimization and supply chain network design functionality of the former Logic-Tools.
Interesting enough, IBM was in the EDI business for many years but chose to divest of its EDI VAN service in 2004. EDI technology has changed somewhat since that time, but in the case of Sterling, IBM seems more interested in the order fulfillment and broader B2B integration application offerings provided by Sterling. An Analyst briefing document also notes that Sterling Commerce applications will augmented by WebSphere offerings, and assume an IBM brand within the first year thus making them available to the IBM global sales teams.
Recently at an annual investor conference, CEO Sam Palmisano outlined a bold plan for IBM to invest $20 billion in acquisitions over the next five years, along with a challenge to have half of the that company’s profit coming from software offerings. It is rather interesting to note that the first salvo of this campaign involves supply chain and B2B connectivity.