International Business Machines Corp (IBM) said on Tuesday that it would acquire database web hosting company SoftLayer Technologies and create a new division for clients interested in cloud services.
The financial terms were not disclosed, but Reuters reported in March that IBM, among others, had been in talks to buy SoftLayer in a deal that could fetch more than $2 billion.
Dallas-based SoftLayer, which leases online storage space to companies, was founded in 2005 and has become what it says is the world's largest privately held website hosting service. The company provides its 25,000 customers, including AT&T Inc and Citrix Systems Inc, with cloud infrastructure.
The company competes with Amazon.com Inc's Web services, Rackspace Hosting Inc and Microsoft Corp.
Wells Fargo analyst Gray Powell estimated that the transaction was worth 11.1 times SoftLayer's projected 2013 earnings before interest, taxes, depreciation, and amortization.
That compares with Rackspace, which is currently trading at 11 times 2013 estimated EBITDA, Mr Powell noted.
Over the last few years, web hosting companies have been considered attractive takeover candidates as technology and telecom companies look to improve the performance and cost efficiencies of their cloud computing services for businesses.
"We believe this is a solid deal strategically in helping bolster IBM's positioning in higher-growth cloud services and providing a stronger alternative to more established vendors," ISI Group analyst Brian Marshall wrote in a note to investors.
For IBM's part, SoftLayer is helping the company build out its private and public cloud-based services for its clients. IBM said it expected to gain $7 billion annually in revenue from cloud services by the end of 2015.
It created a new division called Cloud Services, which will combine SoftLayer and IBM's existing offerings into a global platform.
SoftLayer is majority held by GI Partners, which purchased all of the equity in partnership with the company's management in August 2010.
IBM said it expected the deal to close in the third quarter.
Copyright @ Thomson Reuters 2013
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