Major Reasons for IBM Software Group Acquisitions

1. IBM Software Group Acquisition Strategy Discussion December 3, 2007Jon NewmanVice President, Software Group Business Development

2. Major Reasons for IBM Software Group Acquisitions • Financial • Profitable revenue growth • Strategic • Target high-value, high-growth market segments • Extend portfolio into adjacent market segments • Market consolidation • Technology • Accelerate delivery of capabilities we lack • Skills • Infusion of innovative talent

3. IBM Software Segment Revenue 1996 2000 2006 2010 52% 66% 36% 52% 28% 72% 64% 48% 34% Other Branded Middleware

4. 2006 Software Segment Note 1: Revenue from acquisitions listed as separate line item

5. IBM’s Strategic Acquisitions Deliver Profitable Growth Estimated Acquisition Revenue Growth Revenue YTY% • Between 2002 and 2005 we completed 39 acquisitions priced below $500M • Fit our strategic profile • Estimated Financial Performance: • Revenue 5Yr CGR >25% • IRR >20% • Accretive Year 2 • Earnings excl intangibles Year 1 • Substantial PTI Improvement 1st 3 Years Estimated Acquisition PTI Margin PTI (excl intangibles) % Source: IBM Global Briefing for Financial Analysts Bangalore, June 6 & 7, 2006, updated with 2005 data

6. Augmenting organic growth with strategic acquisitions • High profile entry • Leverage IBM & acquired company strengths • For example: • Lotus • Companies with significant revenue streams • Retain customers and leverage install base • Achieve cost & expense synergies • For example : • Informix • Candle • Buy market leaders in growth segments • Strong ecosystems • Large customer install bases • Usually command premium valuations • For example : • Rational • Tivoli • Ascential • Micromuse • MRO • Filenet • Vallent • Highly complementary • technology buys • Gain skills & time to market • Leverage IBM channels • For example : • CrossWorlds • Tarian • Venetica • Collation • Isogon • DWL • PureEdge • Bowstreet • BuildForge

7. Strategic Acquisition Assessment Segment strategy reviews are used to evaluate the market and screen acquisition candidates SEGMENT DEAL COMMITTEE RESULTING ACQUISITIONS REVIEW DATE • Business Process Integration January 2002 Crossworlds, Holosofx • Security Management April 2002 Access360, MetaMerge • Storage Resource Management April 2002 Trellisoft • Infrastructure Provisioning April 2003 ThinkDynamics • Information Integration July 2003 CrossAccess, Venetica • Business Intelligence April/Oct. 2004AlphaBox, SRD • Software Development Platform June 2004 SystemCorp • Real Time ETL July 2004 Ascential • Enterprise Information Mgmt January 2005 Ascential • Next Generation Networks January 2005 Micromuse • Master Data Management April 2005DWL • SOA April ‘05/Feb. ‘06DataPower, Webify • IT Service Management July ‘05/June ‘06Collation, MRO • Enterprise Content ManagementMay 2006Filenet • Security Software September 2006Consul, Watchfire • Dynamic Business Optimization November 2006Cognos • Embedded Software DevelopmentMarch 2007Telelogic • SMB SaaS March 2007WebDialogs • Storage Software May 2007 Princeton Softech, Data Mirror

8. SWG considers over 250 companies annually for acquisition • In 2006, SWG M&A activity included 57 code name projects • 17 public company acquisition projects • 36 private company acquisition projects • 4 divestiture projects • Sources of private company deal flow • Proactive identification of targets as part of segment strategy work • Via internal sources and VC screening • Investment banks, especially boutiques • Letters from CEOs soliciting consideration • Internal proposals

9. Infusion of Innovative Talent • Starting with Lotus in 1995, we have added more than 21,000 people to SWG through acquisitions, based on employee population at the close of each acquisition. • We invest, incrementally, to bring more skills into these acquired businesses, typically in sales, technical sales and development but also in services, customer support and other functions. • GBS has also done substantial hiring, in many cases, to support the growth of the acquired businesses. • Telelogic and Cognos, when they close, will add another 5,200 people.

10. Software Group Acquisitions Tivoli DBMX Unison DASCOM SANergy Accessible SW Metamerge Trellisoft Access360 ThinkDynamics Candle Cyanea Isogon Collation Micromuse CIMS Labs Rembo MRO DORANA Vallent Consul Risk Mgmt Information Management Informix DWL Ascential SRD Alphablox Tarian Venetica iPhrase CrossAccess Unicorn Green Pasture FileNet Trigo LAS Data Mirror Princeton Softech Cognos Lotus Aptrix Databeam Ubique ONEstone Pathware PureEdge Bowstreet WebDialogs Object Tech Internat’l Wallop Software OpenOrders CrossWorlds Holosofx Gluecode DataPower Webify Rational Information Lab Systemcorp BuildForge Watchfire Telelogic

11. Integration: Critical Element of Acquisition Strategy Category Lead Processes Specific Areas of Activity • Accounting/Finance/Tax • Order Administration • Fulfillment/Distribution • Invoicing/Collections • Service/Support Finance/ Operations Keep the operations running • Banding/Benefits/Onboarding • Notes/Sametime/w3 • Payroll/Commissions • Purchasing/Travel Transition the employees HR / IT Enablement • Pricing Structure • Product Roadmap • Product Positioning & • Announcement Strategy • Opportunity Management • Sales & Channel Training & • Enablement Sales / Marketing / Development Drive the business case • All categories are: • Enabled by cross-functional elements such as IT, HR, finance, accounting, fulfillment, business controls • Organized via global project management and close links to division management • In large deals, these activities will cross multiple geographies/brands/functions • Require dedicated resources to execute with focus

12. Acquisition Integration Team Structure • Division Management Leadership Team • - Brand General Manager • - Integration Executive • - Brand Line Execs (Development, Marketing, Sales, Services, Support) • Assign dedicated brand-specific functional leads to each deal • The most acquisitive brands have dedicated integration leads in these areas • - Support Staff Executives (HR, Legal, Finance) • SWG Acquisition Integration Team • - 100% dedicated to integration planning, execution and best practices • - Certified Project Managers to support Integration Execs • Focus on cross-functional disciplines, training & coordination of the extended team • - Experienced integration leaders provide depth in multiple functional areas: • Finance planning and operations, accounting, business controls, pricing, sales contracts, HR, IT, sales ops, sales enablement, sales incentives, communications, fulfillment • - Experienced cross-functional geography leaders • Extended Team • - Dedicated subject matter experts with integration experience • - Integration & Function leads in the geos (multinational deals) • - Corporate functions (accounting, real estate, tax, treasury, insurance, import/export, etc.) • Corporate Development Integration Team • - Tools, Standards, Best Practices, Coaching, & Education • - Acquisition Tracking

13. Acquisition Performance Tracking • Final approval review with Deal Committee focuses on due diligence findings, revised business case, announcement plans, and detailed integration plan which includes: • Performance tracking milestones • Quarterly, for 8 quarters • Revenue • Profit (PTI) • Retention • Key indicators such as staffing, pipeline, renewals • Milestones such as product deliverables, PPA migration, BP migration, sales plan migration, financial systems integration, transfer of business • Monthly for 1st quarter then quarterly for 7 quarters, performance reviews with VP Corporate Development • Quarterly written performance reports sent to S. Palmisano, copying senior management team

14. w3 SWG Acquisitions home page

15. Where Can I Find Details on SWG Acquisitions? 1) SWG Acquisition Home Page(click here) (http://w3.ibm.com/news/w3news/top_stories/2005/12/swg_ibm_software_acquisitions.html) • One-stop shop for news and materials related to SWG Acquisitions • Acquisition Strategy presentation materials – external use • Sales and technical sales collateral • Acquisition summaries – external use • Acquisition Technology Demos • Product name mapping • Acquisition contact lists • Competitive differentiation • Podcast Series – 20-minute overviews on recent acquisitions 2) w3 Acquisition Technology Learning Suites (click here)(http://learning.atlanta.ibm.com/hr/global/learningsuites/acquisitions.nsf/Pages/HomePage?Open&lsid=852572D6%3A004E9ACE&role=Default)

16. Software companies grow through invention and acquisition • Acquisitions are key to SWG’s growth strategy • A comprehensive market segment strategy review and gap analysis is used to develop acquisition proposals • With an acquisition, we acquire technology & improve time-to-market, valuable skills, an ecosystem and a customer base. • Few large middleware leadership plays exist • Top middleware firms are periodically evaluated against our strategic & financial objectives • EV / Rev multiple, synergy revenue & 1st year profit impact are key business case drivers determining affordability. • We will continue to do complementary point product company acquisitions that leverage our core platform investments and worldwide channels. • A focus on mid-size targets, with attractive revenue growth opportunity and manageable period profit impact, is necessary to achieve our business model • Acquisition business cases must be operationalized and short term profit impacts must be managed • Strong integration execution is critical to achieving acquisition business objectives

17. SWG Acquisition Strategy Questions?