On Wednesday, IBM (NYSE:IBM) announced an agreement to acquire Green Hat, a company that provides solutions for software quality and testing for the cloud and other environments. The acquisition will extend IBM’s ability to help enterprises better manage their software development costs, test cycle times as well as risks. The financial terms of the deal were not disclosed.  Big Blue is the leading enterprise software vendor (excluding consumer sales) in the world and competes primarily with Microsoft (NASDAQ:MSFT), Oracle (NASDAQ:ORCL).
We estimate that IBM’s software business makes up over 40% of our $187 Trefis price estimate for IBM, which is almost in-line with the market price.
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About Green Hat
Green Hat helps customers improve the quality of software applications by enabling developers to leverage cloud computing technologies to conduct testing on a software application prior to its delivery.
Software testing currently represents more than 50 percent of overall development costs, and testing teams often spend upwards of 30 percent of their time managing the complexity of the test environment. This time consuming and labor intensive process has become even more compounded with the short development cycle needed to compete in rapidly expanding markets such as those for smart phones and tablets.
By using Green Hat’s solutions, a virtual test environment can be set up in a matter of minutes versus weeks, and for a fraction of the cost. The acquisition will be a very useful addition to IBM’s integrated application lifecycle management solutions and thus makes perfect business sense.
Acquisition will help boost IBM’s middleware software license revenues
Upon completion of the acquisition, Green Hat will become part of IBM’s Rational Software business, which offers integrated solutions for collaborative lifecycle management that helps software development teams improve their productivity. This will drive the growth in IBM’s middleware software license revenues going forward.
We forecast IBM’s middleware software license revenues to increase from an estimate $5.5 billion in 2011 to nearly $7.5 billion in 2018.Notes: