During the past year, there has been an upsurge in company consolidations in the System i market. Two of the most high-profile mergers occurred when Vision Solutions acquired iTera last year and, more recently, when Vision Solutions picked up another one of its competitors, Lakeview Technology, Inc. This consolidation essentially almost doubled the size of the Vision Solutions organization. As another example, IBM recently grabbed DataMirror, a company that will help IBM strengthen and extend its data-integration suite.

Two Reasons Why

In the case of start-up businesses, acquisition is often an exit strategy, says Gordon Haff, principal IT advisor with Illuminata, Inc. "This has been the case in particular during the past few years although the IPO market seems to have revitalized some," Haff notes.

In light of rising research and development costs, it is often cheaper to acquire a company or product than it is to research and create the product on your own.

"In addition, software is becoming increasingly complex with solutions focusing on ever-richer feature sets," says Charles King, principal analyst with Pund-IT, Inc. "Acquiring a product or company that specializes in the features you want for your own offerings is often cheaper and easier than developing your own."

Also, many companies are doing well financially, and therefore they have the wherewithal to be acquisitive, King adds.

Buying Comes with Challenges, Too

Almost all business consolidations, including System i-related mergers/acquisitions, do have challenges -- both technically and culturally.

"On the technical side, getting products to work well together is a major hurdle, which is why you'll often see mergers announced after companies have some time working together. Cultural issues are often more serious because it's tough to say just how well people and organizations will work together until they move forward," King says.

The acquisition of DataMirror by IBM presents some specific challenges to DataMirror's iCluster software customers. According to the research firm Gartner, although IBM's data-integration suite is strengthened by the DataMirror acquisition, the iCluster software may discontinue if IBM does not phase it into its System i business unit.

"Although current iCluster customers need not worry about support in the short term, they do need to monitor IBM's long-term road map for the product and be prepared to migrate to another System i high-availability solution," Gartner noted in a recent research report.

Only in the System i World?

It turns out that this increase in business consolidation is not specific to System i companies alone. According to data from ComputerWire, the number of acquisitions and mergers in the IT services sector during the second quarter of 2007 was up by 23 percent over the 2006 second-quarter results.

From April to the end of June, ComputerWire tracked 102 mergers and acquisitions that involved IT service vendors. In 2006, there were 83 mergers and acquisitions in the same time period.

In total, 192 IT service-sector consolidation deals were announced in the first half of 2007. Percentage wise, the number of mergers and acquisitions is up 19 percent in 2007 over the first six months of 2006, ComputerWire reports.

The largest deal of 2007 thus far involved a private equity firm buying a credit-card processing company -- Kohlberg Kravis Roberts acquired First Data for a reported $29 billion.

Judging from the number of mergers and acquisitions in the past year, it appears that business consolidation is a trend that will not go away any time soon.

"The pressures that inspire many or even most mergers and acquisitions are continuing with no let-up in sight," King says.