IBM snapped up publicly traded software vendor FileNet for $1.6 billion in an all-cash transaction today, as the market for content management products heats up. (See IBM Buys FileNet.)

According to IBM, FileNet's technology will bolster its Information on Demand initiative, which was launched earlier this year. The strategy essentially ties together a collection of different IBM products, such as DB2 databases and information management software, and offers them as a pre-packaged bundle to users.

"Freeing up information contained in content management systems is critical to unlocking the potential of information to improve business processes and performance," said Ambuj Goyal, general manager of IBM's information management division, in a statement this morning.

The deal could also extend IBM's reach in the security space, according to Aaron Rakers, enterprise storage analyst at A.G. Edwards. In a note released this morning, he said, "It is interesting to note that in Jun 06 FileNet announced a partnership with Decru (NetApp); potentially making for an even more meaningful relationship between IBM and NetApp."

FileNet is a direct competitor to Documentum, which was picked up by EMC for a similar sum back in October 2003. (See EMC Cops Documentum.) EMC has been constantly filling in the gaps of its content management portfolio over the last couple of years, and the firm's execs predict that the market will be worth more than $1 billion within the next two to five years. (See EMC Outlines Strategy, EMC Nets nLayers, Scopes Security, and Documentum Expands.)

EMC's recent acquisition of ProActivity, for example, was seen as a move to compete directly with FileNet in the Business Process Management (BPM) space. (See EMC Acquires ProActivity.) Documentum was also one of the high points in EMC's recent quarterly results. (See Tucci: EMC's Problems 'Self-Induced'.)

The IBM/FileNet deal is expected to close in the fourth quarter of 2006.

In early trading today, shares of IBM stayed at $75.39. FileNet shares rose 95 cents (2.74 percent) to $35.60.

Expect more coverage, as information is released.

— James Rogers, Senior Editor, Byte and Switch