Acquisitions & Divestitures

6 Months Ended

Jun. 30, 2023

Business Combination and Asset Acquisition [Abstract]

Acquisitions & Divestitures:

Acquisitions

Purchase price consideration for all acquisitions was paid primarily in cash. All acquisitions, unless otherwise stated, were for 100 percent of the acquired business and are reported in the Consolidated Statement of Cash Flows, net of acquired cash and cash equivalents.

During the six months ended June 30, 2023, the company completed six acquisitions at an aggregate cost of $423 million. Each acquisition is expected to enhance the company’s portfolio of products and services capabilities and further advance IBM’s hybrid cloud and AI strategy.


Acquisition	Segment	Description of Acquired Business
First Quarter

StepZen, Inc.	Software	Developer of GraphQL to help build application programming interfaces (APIs)

Asset Strategy Library (ASL) Portfolio of Uptake Technologies	Software	Library of industrial asset management data

NS1	Software	Leading provider of network automation SaaS solutions
Second Quarter

Ahana Cloud, Inc.	Software	Expert in open-source-based solutions for data analytics

Polar Security	Software	Innovator in technology that helps companies discover, continuously monitor and secure cloud and SaaS application data

Agyla SAS	Consulting	Leading provider of cloud platform engineering services in France specializing in Cloud, DevOps and Security

At June 30, 2023, the remaining cash to be remitted by the company related to certain first-half 2023 acquisitions was $42 million, most of which is expected to be paid in the first half of 2024. The unremitted cash associated with these acquisitions is primarily a non-cash financing activity for purposes of the company's Consolidated Statement of Cash Flows as of June 30, 2023.

The following table reflects the purchase price related to these acquisitions and the resulting purchase price allocations as of June 30, 2023.


(Dollars in millions)	Amortization Life (in years)	Total Acquisitions
Current assets		$	46
Property, plant and equipment/noncurrent assets		7
Intangible assets:
Goodwill	N/A	301
Client relationships	7	37
Completed technology	5-7	66
Trademarks	2-5	2
Total assets acquired		$	458
Current liabilities		26
Noncurrent liabilities		10
Total liabilities assumed		$	36
Total purchase price		$	423

N/A – not applicable

Goodwill of $266 million, $23 million and $12 million was assigned to the Software, Consulting and Infrastructure segments, respectively, and is primarily attributable to the assembled workforce of the acquired businesses and the increased synergies expected to be achieved from the integration of the acquired businesses into the company’s various integrated solutions and services, neither of which qualifies as an amortizable intangible asset. It is expected that none of the goodwill will be deductible for tax purposes.

The overall weighted-average useful life of the identified amortizable intangible assets acquired was 6.8 years. The identified intangible assets will be amortized on a straight-line basis over their useful lives, which approximates the pattern that the assets economic benefits are expected to be consumed over time.

The valuation of the assets acquired and liabilities assumed is subject to revision. If additional information becomes available, the company may further revise the purchase price allocation as soon as practical, but no later than one year from the acquisition date; however, material changes are not expected.

Transactions Announced – The company signed a definitive agreement in June 2023 to acquire Apptio Inc. (Apptio), a leader in financial and operational IT management and optimization software, for estimated cash consideration of $4.6 billion. The acquisition of Apptio will accelerate the advancement of IBM’s IT automation capabilities and enable enterprise leaders to deliver enhanced business value across technology investments. The transaction is expected to close in the second half of 2023, subject to customary closing conditions, including regulatory clearance. Upon closing, Apptio will be integrated into the Software segment.

Divestitures

Separation of Kyndryl — On November 3, 2021, the company completed the separation of its managed infrastructure services unit into a new public company with the distribution of 80.1 percent of the outstanding common stock of Kyndryl Holdings, Inc. (Kyndryl) to IBM stockholders on a pro rata basis. The company retained 19.9 percent of the shares of Kyndryl common stock immediately following the separation. During 2022, the company fully disposed of its retained interest in Kyndryl common stock pursuant to exchange agreements with a third-party financial institution, which were completed within twelve months of separation. As of November 2, 2022, the company no longer held an ownership interest in Kyndryl.

Income/(loss) from discontinued operations, net of tax for the three and six months ended June 30, 2023 of $2 million and $(4) million, respectively, reflects the net impact of changes in separation-related estimates and the settlement of assets and liabilities in accordance with the separation and distribution agreement. Income/(loss) from discontinued operations, net of tax for the three and six months ended June 30, 2022 of $(73) million and $(2) million, respectively, reflects the same drivers as above and also reflects a gain on sale of a joint venture historically managed by Kyndryl, which was sold to Kyndryl in the first quarter of 2022 upon receiving regulatory approval.

Other — The company completed two divestitures in the second quarter of 2023. The financial terms related to these transactions were not material.