Editor’s note: Allan Krans is an analyst with Technology Business Research.

HAMPTON, N.H. — IBM (NYSE: IBM) announced Monday that it is acquiring Ilog, an 850-employee, service-oriented-architecture (SOA) and business-process-management (BPM) vendor headquartered in France, for $340 million.

In terms of size, the purchase of Ilog falls between the billion-dollar purchases of top-tier software vendors such as Cognos and technology-focused purchases such as Infodyne, which brought 14 employees into IBM.

Ilog reported revenue of $181 million and was slightly unprofitable during its most recent fiscal year, which ended June 30. Much of the financial pressure Ilog experienced is due to a high cost of services delivery and high operating expenses, both of which will benefit from being part of the larger and more efficient IBM organization.

IBM maintains a well-established process set and infrastructure to support acquisitions, and from a financial standpoint, TBR believes Ilog will experience growth through exposure to IBM’s direct and indirect sales capabilities. Profitability will likely improve as Ilog’s development and management infrastructure is integrated within the larger IBM organization. From a technology standpoint, the acquisition of Ilog will extend and support IBM’s SOA and BPM strategy and bring in a proven tool set that is widely accepted in the industry.

Sizable partner and customer list

Ilog brings a well-established partner and customer set to IBM as part of this acquisition, and IBM likely will leverage and extend those following the close of the purchase. Ilog maintains more than 500 OEM partners, including IBM, which embed various Ilog technologies into their product offerings, and the company also maintains a customer list of more than 3,000.

The Ilog technology is widely used in the supply chain management market and is embedded in a number of leading solutions in the market, from vendors such as i2, SAP, Oracle, Microsoft and EMC.

Strengthening the ties that bind

Ilog’s largest partner in its 2007 fiscal year was SAP, which accounted for 3 percent of total Ilog revenue. SAP and Ilog have been partners since 1998, when SAP made a 5 percent investment in the vendor. TBR believes Ilog tools and software are key components in the SAP supply chain solution, and IBM’s acquisition of the provider strengthens and protects the SAP portfolio. SAP supply chain customers should rest easier knowing that a key part of their SAP solution will be sustained and developed by IBM.

In light of the market consolidation driven by Oracle and IBM, many end-users are being forced to consider the potential impact of an acquisition of a key supplier on their IT operations.

The Ilog announcement will result in a continuation of a key strategic relationship between Ilog and SAP, instead of greater encirclement of SAP applications by an expanding Oracle stack. TBR expects customers and partners who have invested in both Ilog and SAP ecosystems will benefit from the increased level of investment IBM can place into the vendor, as well as the expanded development, support and integration into the IBM portfolio.

Mid-sized purchase with scalable assets

Aside from large purchases such as Cognos, the majority of IBM software acquisitions focus on small- to medium-sized software businesses that have preexisting relationships with IBM and the IBM platform. By acquiring companies of this profile, IBM is able to leverage its well-established management and distribution network to rapidly scale revenue and at the same time optimize operations and increase profitability of acquired assets.

Familiarity speeds integration

IBM brings a strong familiarity with the Ilog technology and personnel, as IBM was both a partner and customer of the Ilog product set. Prior to the acquisition, IBM embedded Ilog technology through a partnership relationship that has existed for more than 10 years. IBM also uses the Ilog technology for its own operations, including its chip-manufacturing operations in Fishkill, N.Y.

One of IBM’s primary rules for integrating an acquisition is to support existing customers by meeting product development road maps, and pre-existing partnerships can speed technology and development integration following a purchase.

Closer to applications

While IBM remains out of the broad business-applications market dominated by Oracle and SAP, the company is encroaching on the gray area between middleware and applications.

Prior acquisitions such as Webify pushed IBM toward a componentized middleware strategy, which provides many of the same services as business applications without requiring adoption of an entire platform.

Acquiring Ilog is an extension of this push, particularly with the company’s LogicTools Supply Chain Management Application Suite. Although the word “application” is used for the suite, LogicTools is designed to enhance and complement broader ERP systems. The application suite is an add-on to existing ERP platforms, providing information and management tools that can optimize inventory and supply chain management.