IBM closes USD $34 Billion Red Hat Acquisition, Strengthens Hybrid Cloud Future

IBM has closed the acquisition of OpenSource software company Red Hat. The deal may position IBM as number #1 hybrid cloud provider in a USD $1 trillion hybrid-cloud markets by 2020.

In October 2018, last year, IBM acquired Red Hat for USD $190.00 per share in cash leading to a total enterprise value of approximately $34 billion. Red Hat has been a provider of a number one (#1) of an enterprise Linux operating system known as Red Hat Enterprise Linux. IBM and Red Hat plan to offer next-generation hybrid multicloud platform based on Linux and Kubernetes. The platform will allow enterprises to securely deploy, run and manage data and applications on-premises and on private and multiple public clouds says the announcement.

Executive Opinion

IBM chairman, president, and CEO, Ginni Rometty, said, "Businesses are starting the next chapter of their digital reinventions, modernizing infrastructure and moving mission-critical workloads across private clouds and multiple clouds from multiple vendors. They need open, flexible technology to manage these hybrid multicloud environments. And they need partners they can trust to manage and secure these systems. IBM and Red Hat are uniquely suited to meet these needs. As the leading hybrid cloud provider, we will help clients forge the technology foundations of their business for decades to come."

President and CEO, Red Hat, Jim Whitehurst, said, "When we talk to customers, their challenges are clear: They need to move faster and differentiate through technology. They want to build more collaborative cultures, and they need solutions that give them the flexibility to build and deploy any app or workload, anywhere. We think open source has become the de facto standard in technology because it enables these solutions. Joining forces with IBM gives Red Hat the opportunity to bring more open source innovation to an even broader range of organizations and will enable us to scale to meet the need for hybrid cloud solutions that deliver true choice and agility.

The Brief on Acquisition

In 2013, IBM acquired cloud computing infrastructure company, SoftLayer Technologies for USD $2 Billion, according to CrunchBase.

According to the latest announcement, since 2013 IBM's cloud revenue has grown from 4 percent of total revenue to 25 percent in 2019. IBM cloud revenue for the 12-month period through the first quarter of this year grew to over $19 billion. The Red Hat acquisition is expected to contribute 2 points to CAGR over a period of five years.

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 were the latest offering in 2018. Though the focus of acquisition is the hybrid cloud market, Red Hat brings with it the whole kitty of opensource innovations built over a decade.

Last month (July 2019), the European Commission has unconditionally approved Red Hat acquisition by IBM. The focus of acquisition was the hybrid cloud market.

The press release noted statement of Senior Vice President and Chief Analyst, Frank Gens, IDC, "With the acquisition of Red Hat, and IBM's commitment to Red Hat's independence, IBM is well-positioned to help enterprises differentiate themselves in their industry by capitalizing on open source in this emerging hybrid and multicloud world."

Jim Whitehurst and its current management team will continue to lead Red Hat. Red Hat will operate as a separate unit within IBM. IBM's Cloud and Cognitive Software segment will report Red Hat business, notes the announcement.