U.S. IT company IBM is buying Toronto-based risk analytics software firm Algorithmics for $387 million in cash to enhance its financial services capabilities.

IBM said the deal, expected to close before the end of October, expands its business analytics capabilities by helping clients manage financial risk.

Laurence Trigwell, IBM's head of business analytics for financial services, said there was significant demand from banks, financial markets and insurance firms for analytical insight, both to improve performance and comply with increased regulation.

We see risk analytics as a critical component of that analytical insight, driven by market factors and events over the last 10 years since Basel II (banking regulations) and over the last three or four since the financial crisis, he told Reuters in an interview.

(Alogrithmics') heritage in helping banks produce risk models is incredibly important to help respond to regulatory pressures.

Algorithmics' risk analytics software, content and advisory services are used by banking, investment and insurance businesses to help assess risk, address regulatory requirements and make more insightful business decisions.

In five years, IBM has spent more than $14 billion on 25 acquisitions focused on analytics to help its customers deal with exponentially growing amounts of unstructured data from sources such as social media, biometrics and criminal databases.

On Wednesday, IBM said it was buying British security analytics software firm i2 for an undisclosed sum. Jefferies advised i2 on the sale.

IBM expects revenue from business analytics to reach $16 billion, according to its 2015 roadmap, and it has doubled the number of consultants working in the field to 8,000 over the last two years.

It is not alone in identifying unstructured data as a major opportunity. Hewlett-Packard made it central to a radical reorganization when it agreed to buy British search specialist Autonomy last month.

Trigwell declined to comment on future areas of investment, but he said IBM was committed to continuing to define the business analytics market.

About 900 Algorithmics employees will join IBM's software group upon closing of the deal.

Algorithmics, which generated revenue of $163.7 million in 2010, is a member of Fitch Group, majority-owned by Paris-based Fimalac, a holding company based in Paris.

(Editing by Dan Lalor and Will Waterman)