IBM Acquires Red Hat For $34 Billion To Grow In Hybrid Cloud Market

Validating the excellent business case for OpenSource software companies, IBM has acquired Red Hat for USD $190.00 per share in cash leading to a total enterprise value of approximately $34 billion. The deal has positioned IBM as number #1 hybrid cloud provider in USD $1 trillion hybrid cloud market by 2020.

Red Hat's community-powered approach to deliver reliable and high-performing Linux, hybrid cloud, container, and Kubernetes technologies made Red Hat world's leading provider of enterprise open source software solutions company. Red Hat has been a provider of a number one (#1) of an enterprise Linux operating system known as Red Hat Enterprise Linux.

IBM slide from an investor presentation

Notable OpenSource M&A in 2018:

Before proceeding further, here are some of the biggest Open Source acquisitions in 2018.

Microsoft acquired GitHub for $7.5 billion. GitHub is a code-sharing service largely popular with Open Source communities around the world.

Salesforce acquired MuleSoft for $6.5 billion. MuleSoft specializes in application programming interfaces or APIs. It helps companies access or unlock their data in a wide range of computer systems, from legacy systems to mobile phones. The company is especially helpful in making different cloud-software programs work together on networks that rely on cloud computing to support mobile employees.

Cloudera and Hortonworks agreed to merge in a $5.2 billion deal. It should be noted that Cloudera and HortonWorks both focus on Hadoop products.

Considering all these deals, acquisition of Red Hat is the biggest opensource company deal in 2018. IBM has been building integrated cloud offerings namely IBM Cloud, Digital iX Practice, Cloud Garages, IBM Z, Power and Storage on Linux etc. In fact, IBM Cloud Private, IBM Private Cloud for Data, IBM AI OpenScale and IBM MultiCloud manager are the latest offering in 2018.

Executive Opinions:

IBM Chairman, President, and Chief Executive Officer, Ginni Rometty said, "The acquisition of Red Hat is a game-changer. It changes everything about the cloud market. IBM will become the world's #1 hybrid cloud provider, offering companies the only open cloud solution that will unlock the full value of the cloud for their businesses. 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. Today's announcement is the evolution of our long-standing partnership," said Rometty. "This includes our joint Hybrid Cloud collaboration announcement in May, a key precursor in our journey to this day."

President and CEO, Red Hat, Jim Whitehurst said, "Open source is the default choice for modern IT solutions, and I'm incredibly proud of the role Red Hat has played in making that a reality in the enterprise. Joining forces with IBM will provide us with a greater level of scale, resources, and capabilities to accelerate the impact of open source as the basis for digital transformation and bring Red Hat to an even wider audience –  all while preserving our unique culture and unwavering commitment to open source innovation."

The Acquisition focus:

The focus of acquisition is hybrid cloud market but Red Hat brings with it the whole kitty of opensource innovations built over a decade. Around 80 percent of business workloads are yet to move to the cloud. The biggest obstacle for such workloads is the proprietary nature of today's cloud market. This prevents portability of data and applications across multiple clouds, data security in a multi-cloud environment and consistent cloud management.

IBM Slide from an investor presentation

The acquisition will help IBM (and Red Hat) enable companies to move these workloads securely to the private and public cloud with consistent cloud management without worrying about data portability and security. This is quite possible considering leadership positions of both (Red Hat and IBM) in  Linux, containers, Kubernetes, multi-cloud management, and cloud management and automation.

Red Hat's innovations in delivering enterprise-grade Linux and Kubernetes become core technologies within IBM's $19 billion hybrid cloud business. IBM and Red Hat also will continue to build and enhance Red Hat partnerships with major cloud providers, such as Amazon Web Services (AWS), Microsoft Azure, Google Cloud (GCP), Alibaba Cloud and other.

The announcement further emphasized that "With this acquisition, IBM will remain committed to Red Hat's open governance, open source contributions, participation in the open source community and development model, and fostering its widespread developer ecosystem. In addition, IBM and Red Hat will remain committed to the continued freedom of open source, via such efforts as Patent Promise, GPL Cooperation Commitment, the Open Invention Network, and the LOT Network."

What do you think of this IBM's acquisition? Is it good or bad for Linux and Open Source community? Do let us know in comments below.