IBM Wades into Payments With Sterling Commerce Buy

Software giant to buy B2B transaction software company for $1.4 billion, tapping into demand for supply chain networks and corporate payment hubs.

IBM's announcement today that it will buy B2B transaction and supply chain platform vendor Sterling Commerce from AT&T for $1.4 billion in cash shows that Big Blue sees growth in the corporate payments and supply chain areas.

Sterling Commerce works with many banks to build payment hubs by which they can offer their corporate customers a wide range of payment options — ACH payments, checks, wire transfers, EDI and others — with audit trails and data analysis built in. The customers gain a better handle on their cash flows and an easier process of managing payments online. Most large banks with treasury management departments are creating or expanding such payment hubs.

Sterling Commerce also works outside of the banking industry and has 18,000 global customers for which it facilitates a billion transactions a year in the financial services, retail, manufacturing, communications and distribution industries (this customer list is one reason for IBM's interest). Manufacturers use Sterling Commerce's transaction data hubs to source raw materials electronically, and retailers use them to automate stock replenishment and manage orders online.

In a press conference this morning, Craig Hayman, general manager of WebSphere, promised that IBM will continue to support Sterling Commerce's transaction hub and supply chain customers. "This is a growth market, it's growing faster than the industry," he said. "We'll invest here to innovate in the Sterling Commerce line and the IBM line. We will integrate our Cognos analytics software, iLog business rules software and Lombardi process management software with Sterling Commerce's software in a way that supports what Sterling and IBM customers want to do." He said that once the deal has been finalized, the integration work will begin.

Following the close of the acquisition, approximately 2,500 Sterling Commerce employees will be integrated into the WebSphere organization within IBM’s Software Group. IBM and AT&T expect the transaction to close in the second half of 2010, subject to regulatory approvals and the satisfaction of other customary closing conditions. AT&T expects to record a one-time pretax gain of approximately $750 million in the quarter in which the transaction closes.