With Purchase of Consul, IBM Extends Its Reach in Herndon's Software 'Hotbed'

IBM yesterday announced plans to buy Consul Risk Management, a compliance and security software company with the bulk of its developers in Herndon -- the third local software firm bought in IBM's recent buying binge.

The deal would be the computer giant's 14th acquisition of the year. Eleven have been software companies. IBM has been shopping for acquisition candidates in the Washington area to build up its government IT business and take advantage of the growing number of software firms.

"We're trying to get a jump-start in emerging markets and fill gaps in our current technology," said Al Zollar, general manager of IBM Tivoli, a unit that produces applications to manage administrative and other services.

Consul, which also has an office in the Netherlands, makes software that helps organizations track, report and investigate noncompliant behavior in IT systems. The software, for example, notifies clients if unauthorized users attempt to log in or if administrators try to access inappropriate data. Financial details were not disclosed, and the deal is expected to close early next year.

Consul declined to comment and referred calls to IBM.

The purchase highlights Northern Virginia's growing prominence in the software market. In March, IBM bought Language Analysis Systems, a Herndon firm that develops multicultural name-recognition software. It then acquired Internet Security Systems, a Herndon security company, in August.

Many of IBM's customers are in the Washington area, so it makes sense to have software engineers working nearby, Zollar said.

"Herndon and that whole area of Virginia has really become a hotbed for a lot of software innovation, so it's not surprising that we'd wind up adding companies to our portfolio that have a significant presence there," he said.

Of the 67 companies IBM has acquired over the past five years, 41 have been software firms, and analysts say those acquisitions have helped boost the company's financial performance.

In the most recent quarter, software sales accounted for a fifth of IBM's revenue and about 40 percent of its earnings, compared with 29 percent five years ago.

Benjamin A. Reitzes, an analyst with UBS Investment Research, wrote in a client note that he expects software revenue to grow 21 percent, to $19.9 billion, next year.

"We are expecting continued software momentum with help from acquisitions" that closed in the past two quarters, he wrote.