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IBM to buy Rational for more than $2B

[DECEMBER 6, 2002] -- Update: IBM today entered into a definitive agreement to acquire Rational Software for about $2.1 billion in cash. The acquisition is subject to Rational stockholder and government regulatory approvals. IBM and Rational anticipate closing the deal in Q1/03.

The purchase extends IBM's abilities, especially in the area of system design. It may also put Java-advocate Big Blue in a ''more inclusive'' position in relation to Microsoft's .NET. Clearly, it has the potential to boost IBM development software revenues, as similar deals have in the past.

With revenue of $689 million in its 12 months ended March 31, 2002, Rational is one of the main leaders in design, test, analysis and software process management tools. Arising from roots in military and related software fields, the company accomplished a number of successful mergers and acquisitions in the 1990s, and brought the UML modeling approach to prominence in enterprise application development.

Rational has more than 3,400 employees worldwide.

When the acquisition closes, present Rational head Mike Devlin will become the general manager of a new division and report to IBM's Steve Mills, senior vice president and executive in charge of IBM's Software Group.

It is planned that Rational will become ''another of the premier [IBM] brands,'' said Mills, pointing to IBM's Tivoli and Lotus divisions, which arose out of other significant IBM software acquisitions, as examples of the roadmap intended for a new Rational.

''These divisions work on and build around their areas of expertise. But they do share code for building out solutions,'' added Mills, who suggested that pieces of IBM products will be delivered as part of what Rational will offer to the marketplace.

“Rational will not be a part of WebSphere. The goal is to unify and extend WebSphere,” said Scott Hebner, director of marketing for IBM’s WebSphere unit. The Rational tools extend WebSphere “into the world of architecting,” he said.

“The [IBM] strategy has always been to be a unifying force for integrating multiple platforms. The strategy has been to partner with Rational, TogetherSoft. We knew we needed extended value, so we reached the point where it made strategic sense to integrate the Rational tools and processes across the enterprise. Rational allows us to support the broadest array of software architectures, like air-traffic control systems and cell phones,” Hebner said.

“[Rational’s] ClearCase will continue to be packaged with WebSphere,” Hebner added, noting that IBM has resold the configuration management software under a reseller pact.

''We share a common sense of the importance of software,'' said Eric Schurr, vice president, marketing at Rational. He noted a general industry trend to consolidation and integration of IDEs into underlying platforms.

The acquisition builds on a set of long-standing relationships between the two firms. They have many common customers that use Rational tools for modeling and analysis, and IBM tools for language-oriented development tasks. In the mid-'90s, the two worked closely to migrate IBM's San Francisco component framework to the EJB component platform. Both firms worked during the last year to spread the Eclipse tool interconnection platform.

''Combining our language tools and their process and analysis tools builds out the total workbench. We understand each other pretty well,'' noted IBM's Mills.

While IBM supports multiple OS platforms, including Unix and Windows, its emphasis on the Java application server and component framework has, to this point, excluded much emphasis on the alternative .NET framework. Rational, on the other hand, has hooked tools to both Java and Microsoft’s .NET. IBM’s Mills was not willing to picture the Rational deal as an endorsement of .NET, but Microsoft, reached for comment, saw things differently.

Noting that Microsoft has partnerships with both IBM and Rational, a spokesman for the Redmond, Wash.-based company put a positive spin on the planned acquisition.

“Microsoft has partnered with Rational and IBM for a number of years and we expect that to continue,” said Dan Hay, lead product manager for Visual Studio .NET. “We don’t see any changes in those relationships.”

As recently as October, Bill Taylor, director of product marketing at Rational, published an article on the Microsoft .NET Web site extolling the integration between his company’s Rational XDE UML tool and Microsoft’s development environment.

'Rational Rose is probably the best-integrated modeling tool there is for Visual Studio 6,” Taylor wrote. “Thanks to all the integration hooks in Visual Studio .NET, the combination of XDE Professional and Visual Studio .NET is a quantum leap above that.”

Microsoft's Hay said Microsoft believes IBM recognizes the user demand for .NET tools and that the announced acquisition represents an IBM “endorsement” of .NET.

“We’re happy about that,” Hay said.

In fact, IBM’s Hebner said IBM plans to use the Rational tools, and the firm’s relationship with Microsoft, to improve its offerings for .NET platforms. “One of the major benefits of the move is that we can provide first-class development tools to the Microsoft .NET world. Thus, we can help unify Java, Linux and Windows with a common process.” Hebner indicated that the acquisition represents “an inclusive posture toward .NET.”

Includes reporting by Mike Bucken and Rich Seeley.

About the Author

Jack Vaughan is former Editor-at-Large at Application Development Trends magazine.

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