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IBM to buy cloud HR software vendor Kenexa for $1.3B

IBM plans to boost its enterprise social line of software by acquiring Kenexa, a maker of cloud-based human resources applications, the companies said on Monday.

IBM has agreed to pay US$46 per share for Kenexa in a cash transaction worth about $1.3 billion. Kenexa shares closed at $32.39 on Friday, so IBM is offering a premium of 42 percent for the company.

Kenexa, based in Wayne, Pennsylvania, has almost 9,000 customers, including more than half of the Fortune 500. It has about 2,800 employees and operations in 21 countries.

Kenexa makes a variety of cloud-based applications for HR functions like recruiting, compensation, performance management and employee surveys. Kenexa also offers consulting services to complement its software products.

IBM's goal in acquiring Kenexa is to strengthen its enterprise social and HR software and services. IBM plans to continue developing and supporting Kenexa products, while also bundling and integrating them with its own wares.

"I expect us to move quickly post-closing to bring all of this value together," said Alistair Rennie, general manager of IBM social business, during a press conference.

The Kenexa suite of products offers a "perfect hand-and-glove fit" with IBM's products and services "with almost no overlap," he said.

Kenexa is the latest company in the enterprise HR software market to be acquired recently. Oracle bought Taleo in February, while SAP snapped up SuccessFactors in December.

Paul Hamerman, a Forrester Research analyst, said that, after reading the deal's press announcement and participating in an analyst call with the companies, it seems to him that IBM is mostly interested in Kenexa's IT consulting services and in integrating Kenexa's applications with IBM's enterprise social networking software.

In that sense, IBM got what it wanted -- a company with a substantial IT consulting business and applications IBM can integrate with its social software, he said. "The recruiting business has changed and has heavily embraced social networks as a vehicle," Hamerman said.

Lisa Rowan, an IDC analyst, said this market has experienced strong growth, and larger vendors like SAP, Oracle and now IBM are buying their way into it.

"The market has seen a lot of acquisition activity. It's drawing a lot of interest [from bigger players] because it's hot -- it's doing very well," she said.

IBM's plans to add a layer of enterprise social networking across the Kenexa applications are on target because social connections and social media have become a key component to recruiting, she said.

IBM expects the Kenexa deal to close in this year's fourth quarter, after it receives approvals from Kenexa shareholders and regulatory bodies.

In the second quarter of 2012, ended June 30, Kenexa had revenue of $86.3 million, and a net loss of $1.7 million, or a loss of $0.06 per share. That compares with $69 million in revenue, and a net loss of $1.6 million in last year's second quarter.

Juan Carlos Perez covers enterprise communication/collaboration suites, operating systems, browsers and general technology breaking news for The IDG News Service. Follow Juan on Twitter at @JuanCPerezIDG.

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