The News: IBM announces its intention to acquire the Application Modernization (AppMod) capabilities from Advanced. Read the press release here.

IBM’s Strategic Acquisition of Advanced’s AppMod Capabilities

Analyst Take: IBM’s recent announcement to acquire the AppMod capabilities of Advanced marks a significant milestone in the evolution of mainframe application modernization. This strategic move is set to transfer customers, intellectual property (IP), and approximately 100 staff members to IBM Consulting, thereby enhancing IBM’s mainframe application and data modernization services within its hybrid cloud and AI strategy. The financial terms of this deal, slated to close in March, remain undisclosed, reflecting the dynamic nature of the tech industry’s mergers and acquisitions.

The AppMod capability, a relatively minor segment of Advanced’s business generating about £27 million annually, has grown through strategic acquisitions since 2013. This includes the notable acquisition of Modern Systems in 2019, which specialized in the IBM mainframe market. The demand for application modernization capability is high, and IBM’s interest comes at an opportune time for Advanced. The sale aligns with Advanced’s new strategic direction under CEO Simon Walsh, focusing on sector-specific SaaS solutions and a more UK-centric approach.

Who is Advanced, and What Does This Mean for IBM and the Mainframe Platform?

Advanced stands out as a key player in the application modernization services, particularly in the legacy modernization market. As one of the top business software and service providers in the UK, Advanced has a strong history of aiding customers in transitioning to cloud-based solutions across various sectors. The company’s expertise in evaluating current IT infrastructures, crafting modernization strategies, and executing solutions that integrate with modern IT environments is crucial for hybrid cloud systems.

For IBM, acquiring Advanced’s application modernization capabilities represents a strategic enhancement to its mainframe application and data modernization services. This move is in line with IBM’s larger strategy in hybrid cloud and AI, actively expanding the company’s influence in these areas. Mainframes, essential to many organizations’ hybrid cloud strategies, are at the heart of this acquisition, enabling IBM to offer more comprehensive solutions.

Integrating Advanced’s specialized expertise in mainframe modernization and migration services with IBM’s existing offerings, particularly the GenAI product watsonx Code Assistant for Z, IBM is poised to accelerate mainframe application modernization. This synergy suggests potential for innovative and comprehensive solutions for IBM Z customers, enhancing the company’s ability to support complex transformation projects that involve integrating mainframe systems with modern cloud environments.

Looking Ahead

IBM’s acquisition of Advanced’s AppMod capabilities signifies a strong commitment to maintaining a competitive edge in the mainframe modernization market. This area remains critical for many enterprises on their digital transformation journey. The integration of Advanced’s tools and expertise is expected to enhance IBM’s capacity to deliver complex transformation projects, particularly those that involve the integration of mainframe systems with contemporary cloud environments.

However, challenges in integrating new capabilities and aligning organizational cultures must not be overlooked. These complexities could present short-term obstacles, albeit surmountable, in the path of this strategic union. One area that stands out is how will this align with the ongoing hardware focus of IBM as it looks to roll out z17 in 2024 and drive its overall hardware and software business tied to the Z platform.

Overall, IBM’s decision to acquire application modernization capabilities from Advanced is a calculated step toward reinforcing its position as a hybrid cloud and AI sector leader. This acquisition, one of over 35 since Arvind Krishna’s tenure as CEO, underscores IBM’s dedication to evolving its service offerings and meeting the intricate demands of today’s digital landscape. By continuously augmenting its capabilities through targeted acquisitions, IBM is broadening its technological spectrum and solidifying its role as a key player in the industry, poised to help enterprises navigate the complexities of hybrid cloud and AI.

Disclosure: The Futurum Group is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.

Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of The Futurum Group as a whole.