The all-cash transaction of about US$28 per share is meant to bolster IBM's ability to deliver security services to corporations, the company said.
ISS builds network protection products and services, including intrusion detection and monitoring tools.
IBM said it intends to use ISS's expertise and software to provide more robust security-related services to its corporate customers.
"We see security services as an area of huge growth potential...and that's why we're putting (ISS) in the services side of our operation," said Val Rahmani, general manager of infrastructure management services at IBM Global Services.
She noted that ISS, which will remain a separate business unit within IBM's global services organization, will work closely with Big Blue's software and server divisions.
IBM already offers some managed security services and includes security software in its Tivoli product line.
"Tivoli, in particular, will work (in) lockstep with ISS, as new products are developed," Rahmani said.
With the ISS acquisition, IBM is hoping to grab a larger share of the estimated $22 billion security services market, she added.
The two companies, which have been partners since 1999, realized over the course of time that they were headed in the same direction of offering security as a service and service-oriented architecture systems.
The acquisition, expected to close in fourth quarter of this year, adds to a rapid-fire succession of big purchases at IBM. In August alone, IBM has announced plans to buy Webify Solutions, MRO Software and FileNet. The tab, if all the deals go through, will exceed US$3.6 billion.
Looking to boost revenue from software and services, most of the company's acquisitions--which total more than 40 since 2003--have been software companies.
IBM is seeking to grow profits by creating a comprehensive product portfolio and deliver a combination of software and consulting services, company executives have said.
A number of analysts applauded the merger of IBM and ISS.
"In addition to improving IBM's security portfolio...this acquisition furthers IBM's (security as a service) initiatives," Allan Krans, an analyst at Technology Business Research, wrote in a research note. "With the purchase of ISS, IBM will gain enhanced capabilities to deliver security as a service for its customers. The focus moves away from delivering software-product solutions for security, and towards delivering a complete mix of software, services and hardware to address customers' specific security requirements."
With ISS, Big Blue intends to deliver the company's products through consulting engagements and hosted services.
"By delivering an integrated security platform that is adaptable and extensible to address new threats and business requirements without incremental complexity and cost, ISS has delivered the foundation for delivering security as a service," said Tom Noonan, CEO of ISS.
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