Acquisitions & Divestitures

9 Months Ended

Sep. 30, 2023

Business Combination and Asset Acquisition [Abstract]

Acquisitions & Divestitures

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 nine months ended September 30, 2023, the company completed seven acquisitions at an aggregate cost of $5,033 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
Third Quarter
Apptio, Inc.	Software	Leading provider of financial and operational IT management and optimization software which enables enterprise leaders to deliver enhanced business value across technology investments

At September 30, 2023, the remaining cash to be remitted by the company related to certain 2023 acquisitions was $38 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 September 30, 2023.

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

(Dollars in millions)	Amortization Life (in years)	Apptio, Inc.		Other Acquisitions
Current assets		$	150	$	46
Property, plant and equipment/noncurrent assets		35		7
Intangible assets:
Goodwill	N/A	3,552		301
Client relationships	6-10	740		37
Completed technology	5-7	530		66
Trademarks	2-5	35		2
Total assets acquired		$	5,042	$	458
Current liabilities		255		26
Noncurrent liabilities		177		10
Total liabilities assumed		$	432	$	36
Total purchase price		$	4,610	$	423

N/A – not applicable

The goodwill generated 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.

Apptio, Inc. — Goodwill of $3,180 million and $372 million was assigned to the Software and Consulting segments, respectively. It is expected that one percent of the goodwill will be deductible for tax purposes. The overall weighted-average useful life of the identified amortizable intangible assets acquired was 8.6 years.

Other Acquisitions — Goodwill of $266 million, $23 million and $12 million was assigned to the Software, Consulting and Infrastructure segments, respectively. 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 6.7 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 Closed — In October 2023, the company acquired Manta Software, Inc. (Manta), a world-class data lineage platform to complement its capabilities within watsonx.ai, watsonx.data and watsonx.governance. Manta will be integrated into the Software segment. At the date of issuance of the financial statements, the initial purchase accounting for Manta was not complete.

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.

Loss from discontinued operations, net of tax for the three and nine months ended September 30, 2023 of $10 million and $15 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 from discontinued operations, net of tax for the three and nine months ended September 30, 2022 of $18 million and $16 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.

Transactions Signed — In August 2023, IBM and Zephyr Buyer, L.P., a wholly-owned subsidiary of Francisco Partners (collectively, Francisco), entered into a definitive agreement under which Francisco would acquire The Weather Company assets from IBM for $1,100 million inclusive of $250 million of contingent consideration, of which $200 million is contingent on Francisco’s attainment of certain investment return metrics. The assets, reported within the company’s Software segment, include The Weather Company's digital consumer-facing offerings, The Weather Channel mobile and cloud-based digital properties including Weather.com, Weather Underground and Storm Radar, as well as its enterprise offerings for broadcast, media, aviation, advertising technology and data solutions for other emerging industries. The transaction is expected to close in the first quarter of 2024, subject to customary regulatory clearances and closing conditions. Upon the initial closing, the company expects to receive cash proceeds of approximately $750 million and will provide seller financing to Francisco in the form of a $100 million loan with a term of 7 years. The company expects to recognize a pre-tax gain on the sale, of which the final amount is not yet determinable.

At September 30, 2023, the business met the criteria for held for sale classification. Held for sale assets of approximately $531 million, which consist primarily of goodwill, prepaid and other current assets, intangible assets-net and plant, property and equipment-net of approximately $450 million, $50 million, $20 million and $11 million, respectively, and held for sale liabilities of $17 million consisting primarily of deferred income, were included in the company’s Consolidated Balance Sheet at September 30, 2023.