Flirting with a woman gone wrong
Flirting with a woman gone wrong

IBM spent $ 34 billion to buy cloud computing company Red Hat

IT giant IBM has announced $ 34 billion deal with Red Hat, marking the largest acquisition ever in the software industry.

Founded in in 1911, IBM with a market capitalization of $ 114 billion was once a symbol of the American industry. Cloud computing is one of IBM's four key growth pillars or growth motive. Other areas include social, mobility, and analytics. And this quarter, IBM has announced cloud agreements with Economical Insurance, ExxonMobile and Novis.

According to a joint statement, IBM will buy all of Red Hat's shares at $ 190 per share, 63% higher than the Red Hat closing price of $116.68 per share. The deal will be paid in cash and is expected to be completed in the second half of 2019. This agreement will help IBM expand its role as a cloud provider for enterprises. If the deal ends, Red Hat will have to pay IBM $ 975 million in cash, according to filings with the Securities and Exchange Commission (SEC).

Ginni Rometty, chairman and CEO of IBM, is excited about the deal. "The acquisition of Red Hat is a game-changer. It changes everything about the cloud market," said Rometty. "We will scale what Red Hat has deeply into many more enterprises than they’re able to get to."

ibm-red-hat-2

Launched in 1993, Red Hat is considered a leading provider of open source software and business services, focusing on cloud computing and Linux operating system. In 2012, the company became the first open source software vendor with revenues of over $ 1 billion. The company's headquarter is in Raleigh, North Carolina. Red Hat charges customers for high-end features, maintenance and technical support. Therefore, the acquisition with Red Hat promises to bring IBM a remarkable source of revenue.

"This is a premium company. If you look underneath, this is strong revenue growth, strong profit strong free cash flow," Ginni Rometty continued. "This is an acquisition for revenue growth, this is not for cost synergies."

Cloud computing can be used for software and services that run on the Internet, rather than operating on your computer. Dropbox, Netflix, Flickr, Google Drive, Microsoft Office 365, Yahoo Mail ... - all are cloud services. The above mentioned platforms often do not allow data to be shared between one another. Red Hat, meanwhile, solves that problem by allowing data to be moved back and forth easily. According to IBM and Red Hat, they will focus their efforts to further improve this bottleneck.

ibm-red-hat-1

"Knowing first-hand how important open, hybrid cloud technologies are to helping businesses unlock value, we see the power of bringing these two companies together," said JPMorgan CEO Jamie Dimon.

Since IBM's acquisition of Red Hat was announced, many analysts have seen other midrange technology vendors as targets for acquisitions. IBM - Red Hat, if successful, would be the largest software deal ever to date, bigger than the Microsoft – LinkedIn and Facebook – WhatsApp.

According to an analyst from Raymond James, software companies like ServiceNow, Splunk, Tableau and Workday, along with converged infrastructure company Nutanix, could be acquired. While analysts Wedbush Daniel Ives and Strecker Backe forecasted that the number of M&A deals in the cloud would skyrocket. The most promising names include Pivotal, Qualys and Zscaler.

ibm-red-hat

By: Roxana Edwards