Acquisitions & Divestitures

3 Months Ended

Mar. 31, 2021

5. Acquisitions & Divestitures:

Acquisitions

Purchase price consideration for all acquisitions was paid primarily in cash. All acquisitions, except 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 three months ended March 31, 2021, the company completed three acquisitions at an aggregate cost of $987 million.

The Global Business Services segment completed the acquisition of Nordcloud, a consulting company providing services in cloud implementation, application transformation and managed services; and Taos Mountain, LLC (Taos), a leading cloud professional and managed services provider. The Cloud & Cognitive Software segment, through Red Hat, completed the acquisition of StackRox, an innovator in container and Kubernetes-native security. 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.

The purchase consideration for the acquisition of Nordcloud includes a fair value estimate of contingent consideration to be paid annually through the first quarter of 2024 upon achieving certain revenue milestones. The annual payments are not expected to be material.

The following table reflects the purchase price related to these acquisitions and the resulting purchase price allocation as of March 31, 2021.


	Amortization	Total
(Dollars in millions)	Life (in years)	Acquisitions
Current assets		$	72
Property, plant and equipment/noncurrent assets			4
Intangible assets:
Goodwill	N/A		746
Client relationships	7		134
Completed technology	3-7		114
Trademarks	2-6		27
Total assets acquired		$	1,097
Current liabilities			48
Noncurrent liabilities			62
Total liabilities assumed		$	110
Total purchase price		$	987

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.

The overall weighted-average useful life of the identified amortizable intangible assets acquired was 6.8 years. These 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. Goodwill of $501 million and $245 million was assigned to the Global Business Services segment and Cloud & Cognitive Software segment, respectively. It is expected that approximately 11 percent of the goodwill will be deductible for tax purposes.

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.

At December 31, 2020, the remaining cash to be remitted by the company related to certain fourth-quarter 2020 acquisitions was $323 million. This amount was classified as restricted cash in the Consolidated Balance Sheet at December 31, 2020. At March 31, 2021, the remaining amount to be remitted was not material.

Divestitures

In the fourth quarter of 2020, the company entered into a definitive agreement to sell certain remaining OEM commercial financing capabilities reported within the Global Financing segment. The financial terms related to this transaction are not material. The transaction is expected to be completed in the second half of 2021.