IBM → Red Hat

An all-cash purchase at $190 a share, $34bn in all — IBM's largest — for the open-source enterprise software company, at a 63% premium, to make IBM the supplier of the software layer on which companies run across several clouds.

An all-cash purchase at $190 a share, IBM's largest, aimed at the hybrid cloud market.

Value

$34B

Announced

October 2018

Completed

July 2019

Sector

Technology

Deal type

acquisition

Acquirer

IBM (United States)

Target

Red Hat (United States)

Why it mattered

IBM had lost the public cloud to Amazon and Microsoft and was losing its own customers to them; Red Hat's Linux and OpenShift container platform were the software those customers used to run applications on any cloud, and Red Hat's subscription model — free software, paid support — had made it the largest open-source company. Buying it gave IBM a product that grew, a relationship with every large IT department, and an argument: that the future was hybrid, with workloads on several clouds and on-premises, and that the company that managed the layer between them would matter more than any one cloud.

The premium and the price — about 10 times revenue for a company growing at 20% — were criticised, and IBM borrowed most of it. Red Hat was kept as a separate unit under its own chief executive, Jim Whitehurst, who later became IBM's president, and its neutrality across clouds was preserved because it was the point.

What it left behind

Red Hat as IBM's growth engine for the following years, and the hybrid-cloud strategy that IBM's spin-off of its infrastructure-services business (Kyndryl, 2021) completed. It is the model for a legacy incumbent buying the open-source standard of the next architecture and leaving it alone, and — in its financing — an example of a cash deal at scale in a high-yield market.