IBM is buying Red Hat: What they want you to know

IBM announced plans to acquire Red Hat, the world’s leading provider of open source technology for approximately $34B. 

According to Mergermarket data, this is the second-largest computer software deal ever recorded globally, which dates back to 1998.

As IBM’s most significant acquisition, and the most significant tech acquisition of 2018 - this deal represents a landmark moment for both companies and is a major step forward in IBM’s ongoing focus on high-value business, the transformation of our portfolio, and our leadership in the emerging era of AI and cloud. With this acquisition, IBM will become the world’s leading hybrid cloud provider. 

The news comes as a game-changer for cloud as it completely redefines the cloud debate as “open” vs “proprietary”. Most companies today are only 20 percent along their cloud journey, renting compute power to cut costs. The next 80 percent will be about unlocking real business value and driving growth. This is the next chapter of the cloud.

But while companies want to move their business applications to hybrid cloud, they remain worried about data security as they migrate applications across multiple clouds. And the proprietary nature of most clouds means moving data and services across clouds is a complex, expensive, manual process of stitching clouds together. They need open cloud technologies, that enable them to move applications and data across multiple clouds - easily and securely. IBM and Red Hat will be strongly positioned to address this issue and accelerate hybrid multi-cloud adoption.

IBM is acquiring Red Hat, completely changing the cloud landscape and making IBM the world’s #1 hybrid cloud provider.
This deal represents IBM’s most significant acquisition (by a multiple of six), and the most significant tech acquisition of 2018.
This acquisition represents the latest and most significant move in IBM’s shift to higher value business.

Details about IBM purchasing Red Hat

• The acquisition will be accretive to IBM free cash flow and gross margin within 12 months, and operating EPS within 24 months. It will accelerate revenue growth
   
• IBM is acquiring one of the most highly-prized, premium software companies in the IT industry, recognized as a world leader in open source development, including Linux, which has become the #1 platform for applications across on-prem and cloud environments.
   
• IBM is acquiring the world’s largest portfolio of open source technology.
   
• This acquisition positions IBM to address emerging client demand to move their business applications to the cloud. Most companies today are only 20 percent along their cloud journey, renting compute power to cut costs.
   
• The next 80 percent is about unlocking real business value and driving growth. This is the next chapter of the cloud. It requires shifting business applications to the hybrid cloud, extracting more data and optimizing every part of the business, from supply chains to sales.
   
• To accomplish this, businesses need an open, hybrid cloud approach to developing, running and deploying applications in a multi-cloud environment. With this acquisition, IBM is uniquely positioned to address this emerging demand.
   
• The follows more than a year of evolving a long-standing partnership with Red Hat. This includes a joint Hybrid Cloud collaboration announcement in May, a key precursor to today’s announcement.

The cloud industry chatter

Sacha Labourey, CEO of CloudBees commented on the acquisition, "I’m not surprised by Red Hat being acquired. I am, however, much more surprised by who the acquirer is. This is a bold move by IBM, which might prove to be their best single bet to remain relevant for another few decades. In this new cloud era, developer mindshare is as important as enterprise mindshare. Bottom-up meets top-down. Developers vote with their feet. In this subtle dance, successful public cloud vendors have been able to get their steps right. IBM on the other hand, while very strong in top-down motions, hasn’t been able to really build up developer love. The impact has led IBM to be in the second tier of cloud vendors, along with Oracle, after AWS, Microsoft and Google."

Elizabeth Lim, Senior Analyst at Mergermarket says, “IBM has been in need for some time of catching up with other tech giants such as Amazon and Microsoft in making a sizeable investment like this in the cloud, and it makes sense that IBM would pay such a large amount for a company like Red Hat, to try to outbid any potential competition. The deal with Red Hat marks a transformation for the company more toward hybrid cloud computing after years of seeking growth with mixed results, such as when it made big bets on its AI system Watson while its traditional IT business has shrunk. It’s clear that CEO Ginni Rometty intends, with this deal, to try to propel IBM back into the ranks of the industry’s top players after falling behind in recent years, and that the company also felt the need to acquire outside tech instead of spending years trying to develop it in-house. The question now is how IBM will successfully integrate Red Hat."