IBM announced to acquired Red Hat in a deal valued at $34B USD. The deal has already been approved by both company’s boards and is subject to regulatory and shareholder approvals. The deal was facilitated by JPMorgan from IBM side and Guggenheim Partners from Red Hat side.
IBM will acquire all common shares of Red Hat for $190 per share, the companies said. Red Hat’s stock had closed at $116.68 a share Friday, down from a peak in June of about $175. The company’s latest push into open source software follows a similar move by Microsoft, whose $7.5bn acquisition of code-sharing site Github closed last week.
The deal would be the largest software acquisition ever and third largest technology acquisition behind the Dell / EMC and Avago/Broadcom deals.
The acquisition represents a healthy 11x multiple on 2017 Red Hat revenues, which is very impressive for a 21% growth company.
In their published remarks, IBM and Red Hat position the acquisition as a move for IBM to become the largest infrastructure provider for the hybrid cloud, angling for IBM to be the primary supplier to public clouds with their intention to develop deeper partnerships with vendors like Microsoft, Google, and Amazon.
Last year, Codenvy, was acquired by Red Hat, and that time itself discussions of Red Hat being acquired were broadly discussed with Google, Microsoft and IBM as likely acquirers.
Open Source Is the Biggest Theme In Technology This Year
Open source has been the biggest theme in technology this year.
Prior to IBM’s purchase of Red Hat, three of the biggest tech deals of the year were:
- Microsoft’s $7.5 billion purchase of GitHub, a code-sharing service largely adopted by the open source community
- Salesforce’s $6.5 billion acquisition of MuleSoft, whose technology is competitive to WSO2’s — responsible for weaving disparate software applications, data and devices through integration.
- Cloudera and Hortonworks, both working around the open source Hadoop technology, agreed to merge in a $5.2 billion deal.
It is becoming increasingly clear that open source is the modern foundation for software infrastructure. Open source’s community-driven approach builds software faster and with fewer issues.
IBM Will Be a Drag to Red Hat
IBM’s rich, long history and complicated organizational structure will ultimately injure what makes Red Hat special.
IBM’s bureaucracy places a fundamental orientation toward being commercial- and a patent-first mindset towards software innovation. While IBM has participated in significant open source projects, it’s always been with a me-first mindset that works to exploit the positive advances of the open source upstream community. Open source, at its core, advances when the commercial vendors that participate do so in a manner that shows selflessness by investing in the upstream’s goals, even if those goals conflict with the commercial interests of the vendor.
Red Hat has a policy in their employee manual that explicitly gives their employees to act in the best interests of upstream open source projects, even if it’s counter to Red Hat’s interests. There will be no form of retribution and limited management oversight. Red Hat influences open source by its choice of how many people they fund to work in different areas, not in charting the direction of those projects themselves. Red Hat makes a solid distinction between giving upstream projects independent direction apart from the commercial forks that imprint their view of what the product must be.
IBM, on the other hand, has a history of engaging within upstream projects to steer them towards corporate self interests. Even if Red Hat is left to autonomous operation for a year, will IBM be able to resist their historical and institutional attitudes towards commercialization for the projects that Red Hat drives? It’s hard to see this happening, and the value of open source slowly erodes if your employee participants are not given latitude to chart its future course.