By SPENCER E. ANTE
International Business Machines Corp. IBM -1.20% agreed to buy privately held SoftLayer Technologies Inc. in a deal aimed at beefing up the company's efforts in cloud computing and taking on Amazon.com Inc. AMZN -0.34% more directly.
The deal for the Dallas-based company is valued at approximately $2 billion, said a person familiar with the matter.
As part of the deal, IBM is creating a cloud-services division within its Global Services group to house SoftLayer as a stand-alone company and pull together its other cloud-computing services. The division will start offering the combined services after the close of the deal, which IBM expects in the third quarter.
SoftLayer, founded in 2005, serves about 21,000 customers from 13 data centers it operates in the U.S., Europe and Asia. The company says it is the largest privately owned Web-hosting company.
Cloud computing is growing rapidly, as small and large companies consider it to be a cheaper and more flexible approach to using technology.
In cloud computing, companies rent computing power and technology instead of buying it upfront and managing it themselves at greater initial expense.
Cloud computing is one of IBM's major growth areas. In 2011, it projected that cloud services would generate $7 billion in revenue for the company by 2015, of which $3 billion is incremental growth.
Erich Clementi, senior vice president, IBM Global Technology Services, said the deal for SoftLayer would play a big role in helping IBM to meet that goal. "This is a major piece because of the breadth it allows us to address," he said.
Mr. Clementi said IBM would continue to look for other cloud deals. "If something with a similar power comes along we will look at it," he said.
Moody's MCO -0.76% estimated in November that SoftLayer's revenue totaled $364 million for the year ended in June 2012. It also expected the company to have negative free cash flow in fiscal year 2012 due to heavy capital expenditures, but projected the company to be free-cash-flow neutral in fiscal year 2013.
The acquisition could help IBM compete more aggressively for the low end of the market against Amazon.com, which has a dominating position with small and midsize businesses in the cloud-computing market.
Amazon is a leader in offering so-called public clouds, computing environments that are managed by third-party data centers outside of companies.
IBM has gained more traction by offering large companies and governments private clouds, systems that the companies typically maintain on their own premises or in dedicated areas in data centers.
Mr. Clementi said SoftLayer had built the most flexible cloud-computing platform in the industry, which would help IBM to offer a range of clients public clouds, private clouds and hybrid environments.
"With SoftLayer, IBM will accelerate the build-out of our public cloud infrastructure to give clients the broadest choice of cloud offerings to drive business innovation," he said. "It was the ideal complement to our cloud portfolio."
SoftLayer has historically been popular with many technology startups and has partnered with cloud-computing software providers such as 10gen, which are popular with the technology industry.
But SoftLayer Chief Executive Lance Crosby said the company has been attracting more large enterprises over the past year or two.
Mr. Crosby said the deal is compelling because it would allow the company to expand more easily around the world and tap into IBM's business expertise and cloud technology that is more popular with larger companies. IBM could also offer its cloud-computing software to SoftLayer's clients.
IBM said that it offers more than 100 types of software delivered over the Internet to help companies manage various business functions, such as marketing, procurement and online stores.
IBM recently began offering its Watson artificial-intelligence answering technology as a cloud solution.