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IBM (Finally) Buys CrossWorlds For US$129m

By Erin Joyce

In what appears to be a well-timed waiting game, International Business Machines has purchased the assets of middleware company CrossWorlds Software, Inc. in a cash transaction valued at about $129 million.

The deal ends long-running market chatter over whether IBM would purchase the company, which went public in June of 2000 as the dot-com bubble was bursting.

The acquisition of the Burlingame, Calif-based CrossWorlds , which specializes in software that integrates internal and external operations and extends them to the Internet, helps IBM lock up even more market share in the increasingly competitive and growing segment for integration software.

IBM's big seller in the middleware category, WebSphere, had sales growth of 75 percent between the third quarter of 2000 and this year's third quarter. Its MQSeries integration software also grew by 129 percent year-over-year during the same period.

The sector is a strategic area for the Armonk, NY-based IBM, as is cost-control. With the tech recession and falling hardware sales eating into every tech player's margins, every deal is getting more scrutiny.

By waiting well into the tech sell-off that hit many "new economy" companies that came into being in the late 1990s, IBM gets itself the market share it seeks and at a lower premium than it would have paid two years ago.

CrossWorlds software counts major companies as customers, such as Caterpiller, the Dow Chemical Company, DuPont, Nortel Networks, Sony, and the Whirlpool Corporation.

Its software products also support Internet-based programming standards such as J2EE and XML for data interchange.

And, as a young company still searching for profit margins, the company appears to have found a sensible exit.

Incorporated in 1997, CrossWorlds became something of a poster child for Silicon Valley's excess hype during the Internet explosion of the late 1990s. A slick print advertisement campaign about the company that featured co-founder Katrina Garnett wearing a black evening dress and pearls helped it break through the clutter of software companies that were jumping into the marketplace.

But the same buzz it gained for a "sizzle" approach to selling software also attracted criticism of the company for overspending venture dollars on pricey ad campaigns.

By the end of 1999, Garnett was replaced as chief executive by Fred Amoroso, a former IBM executive who now serves as CrossWorlds' president and chief executive officer.

In a statement, he expressed excitement about the plans for CrossWorlds to become a key integration element within IBM's WebSphere software platform.

Shares of CrossWorlds closed up 21 cents at about $3.54 on the Nasdaq Monday, prior to the announcement, and its market capitalization was $94.8 million. In early morning trading, its price had jumped by 26 percent to $4.46.

More details on the deal are expected when it releases its third quarter earnings results after the market closes today.