ARMONK, N.Y. and RALEIGH – Last week, IBM (NYSE: IBM) and Red Hat officially closed the transaction under which IBM acquired all of the issued and outstanding common shares of Raleigh-based software company Red Hat for $190.00 per share in cash, representing a total equity value of approximately $34 billion.
The deal sets a high bar for industry-wide impact in the rapidly evolving cloud-based tech realm. In a joint statement, company officials said, “The acquisition redefines the cloud market for business. Red Hat’s open hybrid cloud technologies are now paired with the unmatched scale and depth of IBM’s innovation and industry expertise, and sales leadership in more than 175 countries.”
Together, IBM and Red Hat seek to offer a next-generation hybrid multi-cloud platform. Based on open source technologies, such as Linux and Kubernetes, representatives say the platform will allow businesses to securely deploy, run and manage data and applications on-premises and on private and multiple public clouds.
“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,” said Ginni Rometty, IBM chairman, president and CEO. “They need open, flexible technology to manage these hybrid multi-cloud 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.”
“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,” said Jim Whitehurst, president and CEO, Red Hat. “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.”
Most enterprises today are approximately 20 percent into their transition to the cloud.
To succeed in the next chapter of the cloud, IBM officials note, businesses need to manage their entire IT infrastructure, on and off-premises and across different clouds – private and public – in a way that is simple, consistent and integrated. “Businesses are seeking one common environment they can build once and deploy in any one of the appropriate footprints to be faster and more agile. IBM’s offerings have evolved to reflect new customer needs and drive greater growth. The acquisition of Red Hat further strengthens IBM as the leader in hybrid cloud for the enterprise.”
Red Hat will continue to be led by Jim Whitehurst and its current management team. Whitehurst is joining IBM’s senior management team, reporting to Ginni Rometty. IBM will maintain Red Hat’s headquarters in Raleigh, its facilities, brands and practices. Red Hat will operate as a distinct unit within IBM and will be reported as part of IBM’s Cloud and Cognitive Software segment.
Whitehurst considered moving the company to Austin or Atlanta in 2011, but decided to remain in Raleigh, and with it, the company’s signature red fedora logo became a recognizable part of the Raleigh skyline. Since then, Red Hat and its army of employees have firmly established themselves within the community, bringing a distinct and, some say, refreshing “tech vibe” to the area. Red Hat-ters are hopeful that the company will retain its unique culture as officials have emphasized that the acquisition will not change Red Hat’s commitment to open-source values, and will preserve its independence and neutrality.
IBM’s cloud revenue has grown from 4 percent of total revenue in 2013 to 25 percent today. This growth comes through a comprehensive range of as-a-service offerings and software, services and hardware that enable IBM to advise, build, move and manage cloud solutions across public, private and on-premises environments for customers. 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 approximately two points of compound annual revenue growth to IBM over a five-year period.
Red Hat’s fiscal year 2019 revenue was $3.4 billion, up 15 percent year-over-year. Fiscal first-quarter 2020 revenue, reported in June, was $934 million, up 15 percent year-over-year. In that quarter, subscription revenue was up 15 percent year-over-year, including revenue from application development-related and other emerging technology offerings up 24 percent year-over-year. Services revenue also grew 17 percent.