NOTE F. ACQUISITIONS & DIVESTITURES

Acquisitions

Purchase price consideration for all acquisitions was paid primarily in cash. All acquisitions, except otherwise stated, were for 100 percent of the acquired business and are reported in the Consolidated Statement of Cash Flows, net of acquired cash and cash equivalents.

2021

In 2021, the company completed fifteen acquisitions at an aggregate cost of $3,342 million. Each acquisition is expected to enhance the company’s portfolio of products and services capabilities and further advance IBM’s hybrid cloud and AI strategy.

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The following table reflects the purchase price related to these acquisitions and the resulting purchase price allocations as of December 31, 2021.

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N/A–Not applicable

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The goodwill generated is primarily attributable to the assembled workforce of the acquired businesses and the increased synergies expected to be achieved from the integration of the acquired businesses into the company’s various integrated solutions and services neither of which qualifies as an amortizable intangible asset.

The valuation of the assets acquired and liabilities assumed is subject to revision. If additional information becomes available, the company may further revise the purchase price allocation as soon as practical, but no later than one year from the acquisition date; however, material changes are not expected.

Turbonomic–The overall weighted-average useful life of the identified amortizable intangible assets acquired was 8.9 years. Goodwill of $1,372 million and $67 million was assigned to the Software and Consulting segments, respectively. It is expected that none of the goodwill will be deductible for tax purposes.

Other acquisitions–The overall weighted-average useful life of the identified amortizable intangible assets acquired was 6.6 years. Goodwill of $646 million and $464 million was assigned to the Consulting and Software segments, respectively. It is expected that approximately seven percent of the goodwill will be deductible for tax purposes.

The identified intangible assets will be amortized on a straight-line basis over their useful lives, which approximates the pattern that the assets’ economic benefits are expected to be consumed over time.

Transactions Closed in 2022–In January 2022, the company acquired Envizi, a leading data and analytics software provider for environmental performance management; and Sentaca, a leading telco consulting services and solutions provider specializing in automation, cloud migration, and future networks for telecommunication operators. In February 2022, the company acquired Neudesic, an application development and cloud computing services company. Envizi will be integrated into the Software segment. Sentaca and Neudesic will be integrated into the Consulting segment. At the date of issuance of the financial statements, the initial purchase accounting for Envizi, Sentaca, and Neudesic was not complete.

2020

In 2020, the company completed seven acquisitions at an aggregate cost of $723 million.

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At December 31, 2020, the remaining cash to be remitted by the company related to certain fourth-quarter acquisitions was $323 million. This amount was classified as restricted cash in the Consolidated Balance Sheet, most of which was paid in the first quarter of 2021.

The following table reflects the purchase price related to these acquisitions and the resulting purchase price allocations as of December 31, 2020.

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N/A—Not applicable

The goodwill generated is primarily attributable to the assembled workforce of the acquired businesses and the increased synergies expected to be achieved from the integration of the acquired businesses into the company’s various integrated solutions and services neither of which qualifies as an amortizable intangible asset.

The overall weighted-average useful life of the identified amortizable intangible assets acquired was 6.8 years. These identified intangible assets will be amortized on a straight-line basis over their useful lives, which approximates the pattern that the assets’ economic benefits are expected to be consumed over time. Goodwill of $362 million, $205 million and $8 million was assigned to the Software, Consulting and Infrastructure segments, respectively. The goodwill recorded as a result of these acquisitions was not deductible for tax purposes.

2019

In 2019, the company completed one acquisition at an aggregate cost of $35 billion.

Red Hat–On July 9, 2019, IBM completed the acquisition of all of the outstanding shares of Red Hat at an aggregate cost of $35 billion. Red Hat’s portfolio of open source and cloud technologies combined with IBM’s innovative hybrid cloud technology and industry expertise are accelerating the delivery of the hybrid cloud platform capabilities required to address the next chapter of cloud implementations.

On the acquisition date, Red Hat shareholders received $190 per share in cash, representing a total equity value of approximately $34 billion. The company funded the transaction through a combination of cash on hand and proceeds from debt issuances.

The following table reflects the purchase price and the resulting purchase price allocation as of December 31, 2020. The net purchase price adjustments recorded during 2020 were primarily related to noncurrent tax assets and liabilities.

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N/A—Not applicable

The goodwill generated was primarily attributable to the assembled workforce of Red Hat and the increased synergies expected to be achieved from the integration of Red Hat products into the company’s various integrated solutions neither of which qualify as an amortizable intangible asset.

The overall weighted-average useful life of the identified amortizable intangible assets acquired was 10.9 years. These identified intangible assets will be amortized on a straight-line basis over their useful lives, which approximates the pattern that the assets’ economic benefits are expected to be consumed over time. The following table presents the goodwill allocated to the segments as of December 31, 2021:

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** Goodwill of approximately $2.7 billion related to the Red Hat acquisition was derecognized at the time of the Kyndryl separation. Refer to note A, “Significant Accounting Policies,” and note C, “Separation of Kyndryl,” for additional details.

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The following table presents the supplemental consolidated financial results of the company as of December 31, 2019 on an unaudited pro forma basis, as if the acquisition had been consummated on January 1, 2018. The primary adjustments reflected in the pro forma results relate to: (1) the debt used to fund the acquisition, (2) changes driven by acquisition accounting, including amortization of intangible assets and the deferred revenue fair value adjustment, (3) employee retention plans, (4) elimination of intercompany transactions between IBM and Red Hat, and (5) the presentation of acquisition-related costs.

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The unaudited pro forma financial information presented below does not purport to represent the actual results of operations that IBM and Red Hat would have achieved had the companies been combined during the periods presented, and was not intended to project the future results of operations that the combined company could achieve after the acquisition. Historical fiscal periods are not aligned under this presentation. The unaudited pro forma financial information did not reflect any potential cost savings, operating efficiencies, long-term debt pay down estimates, suspension of IBM’s share repurchase program, financial synergies or other strategic benefits as a result of the acquisition or any restructuring costs to achieve those benefits.

(Unaudited)

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Divestitures

2021

Kyndryl–On November 3, 2021, the company completed the separation of Kyndryl. Refer to note C, “Separation of Kyndryl,” for additional information.

Other Divestitures–In 2021, the company completed two divestitures reported in the Software segment and one divestiture reported in Other-divested businesses. In the third quarter of 2021, IBM completed the sale of the company’s remaining OEM commercial financing capabilities reported within the Financing segment. The financial terms related to each of these transactions did not have a material impact to IBM's Consolidated Financial Statements.

Transactions Announced–In January 2022, the company signed a definitive agreement in which Francisco Partners will acquire IBM’s healthcare data and analytics assets reported within the Software segment. The assets include Health Insights, MarketScan, Clinical Development, Social Program Management, Micromedex, and imaging software offerings. The transaction is expected to close in the second quarter of 2022, subject to customary regulatory clearances and closing conditions. At December 31, 2021, the company concluded that the business did not meet the criteria for held for sale classification.

2020

There were no divestitures completed during the year ended December 31, 2020.

2019

Select IBM Software Products–On June 30, 2019, HCL Technologies Limited (HCL) acquired select standalone Software products from IBM for $1,775 million, inclusive of $150 million of contingent consideration. The transaction included commercial software, intellectual property and services offerings in addition to transition services for IT and other services. The company recognized a pre-tax gain on this transaction of $626 million and $43 million in 2019 and 2020, respectively.

The company received cash of $812 million at closing and $812 million in the second quarter of 2020. The company also received $140 million of contingent consideration as of December 31, 2021. In addition, IBM remits payment to HCL predominantly for servicing certain customer contracts until such contracts are terminated or entitlements are assumed by HCL, related to deferred revenue that

existed prior to closing. IBM made cash payments to HCL of $38 million, $288 million, and $174 million in 2021, 2020 and 2019, respectively, for such contracts.

Select IBM Marketing Platform and Commerce Offerings–On April 4, 2019, IBM and Centerbridge Partners, L.P. (Centerbridge) announced a definitive agreement, in which Centerbridge would acquire select marketing platform and commerce offerings from IBM. The transaction included commercial software and services offerings. In addition, IBM is providing Centerbridge with IT transition services. All other contracted transition services concluded as of June 30, 2020. Upon closing, Centerbridge announced that this business would be re-branded under the name Acoustic. The closing completed for the U.S. on June 30, 2019. The company received a net cash payment of $240 million in 2019 and expects to receive an additional $150 million of cash within 36 months of the U.S. closing.  

A subsequent closing occurred in most other countries on March 31, 2020. The closing of all remaining countries occurred as of June 30, 2020. The pre-tax gain recognized on this transaction as of December 31, 2021 was $79 million.

IBM Risk Analytics and Regulatory Offerings–On September 24, 2019, IBM and SS&C Technologies Holdings, Inc. (SS&C) entered into a definitive agreement in which SS&C would acquire certain Algorithmics and related assets from IBM. The transaction closed in the fourth quarter of 2019. The company recognized an immaterial pre-tax gain on the sale for the year ended December 31, 2019.

Sales Performance Management Offerings–On November 20, 2019, IBM and Varicent Parent Holdings Corporation (Varicent) entered into a definitive agreement in which Varicent would acquire certain sales performance management assets from IBM. The initial closing of certain countries was completed on December 31, 2019. The company received a net cash payment of $230 million and recognized a pre-tax gain on the sale of $136 million for the year ended December 31, 2019. A subsequent closing for the remaining countries occurred on March 31, 2020 and the company recognized an immaterial pre-tax gain.

The above 2019 divested businesses are reported in Other–divested businesses as described in note E, "Segments."

In addition to the above, the company completed three divestitures reported in the Financing segment, the Consulting segment and the Other–divested businesses in 2019. The financial terms related to each of these transactions were not material.

The pre-tax gains recognized on the divestitures above were recorded in other (income) and expense in the Consolidated Income Statement.