June 4, 2013 – IBM announced plans to buy out privately held cloud computing infrastructure provider SoftLayer and break out its combined global cloud platform into a new division.

SoftLayer deals in cloud services through dedicated Web hosting, managed services and high-performance computing, as well as its automated CloudLayer platform. The vendor houses more than a dozen data centers, including locations in its home base of Dallas as well as Houston, Seattle, Washington, D.C. and across Asia and Europe. SoftLayer counts 21,000 customers, with recent gains in the gaming industry and releases covering big data hosting. In 2010, SoftLayer merged with fellow Texas server company The Planet Internet Services, bringing along its leader Lance Crosby as CEO. Bloomberg reported that sources close to the deal put IBM's payout for SoftLayer at $2 billion. Hoovers estimates SoftLayer’s recent quarterly revenue at $42.1 million.

In the proposed deal, IBM SVP of Global Technology Services Erich Clementi lauded SoftLayer’s capabilities to accelerate the construction of its public cloud infrastructure, as well as complement IBM’s SaaS portfolio.

At the close of the deal, a new IBM Cloud Services division would include IBM’s SmartCloud platform along with SoftLayer’s offerings, which IBM stated would be expanded to meet OpenStack, Linux and other open standards. Clementi will be at the helm of the new cloud division, which would support both IBM and SoftLayer clients, ISVs and partners. IBM anticipates its cloud revenue to reach $7 billion by 2015.

Holger Mueller, VP and principal analyst at Constellation Research, called IBM’s proposal a “key move” to reach that revenue figure.

“SoftLayer’s triple play with bare metal, private and public cloud offerings gives IBM a great opportunity to change the game in the cloud wars,” Mueller says.

Bruce Guptill, analyst at Saugatuck Technology, says the deal is the “most recent example” of the consolidation trend going on with cloud computing infrastructure providers. For IBM, Guptill says: “The new Cloud division should provide improved coordination of development and improvements in ease-of-adoption in cloud offerings.”

Financial details of the deal were not disclosed. IBM anticipates the deal to close in the third quarter of 2013.

Cloud and SaaS deals have grown incrementally in the tech M&A market during the last year. In late April, IBM announced the intent to purchase software automation provider UrbanCode in a move to strengthen its SmartCloud portfolio. Over the last month, Dell, Cisco and Software AG have also announced respective deals in the cloud and on-demand infrastructure. And also Tuesday, salesforce.com announced a $2.5 billion proposal for cloud marketing specialist ExactTarget.

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