As Red October came to a close…at a time when US Tech stocks were taking their biggest battering in a long time the news came out over the weekend that IBM had acquired RedHat for 34 billion dollars! This seems to have taken the tech world by surprise…the all-cash deal represents a massive 63% premium on the previous close of RedHat’s stock price…all in all it seems ludicrous.
Most people that I’ve talked to about it and from reading comments on social media and blog sites suggests that the deal is horrible for the industry…but I’ve felt this is more a reaction to IBM than anything. IBM has a reputation as swallowing up companies whole and spitting them out the other side of the merger process a shell of what they once were. There has also been a lot of empathy for the employees of RedHat, especially from ex-IBM employees who have experience inside the Big Blue machine.
I’m no expert on M&A and I don’t pretend to understand the mechanics behind the deal and what is involved…but when I look at what RedHat has in its stable, I can see why IBM have made such an aggressive play for them. On the surface it seems like IBM are in trouble with their stock price and market capitalization falling nearly 20% this year and more than 30% in the last five years…they had to make a big move!
IBM’s previous 2013 acquisition of SoftLayer (for a measly 2 billion USD) helped them remain competitive in the Infrastructure as a Service space and if you believe the stories, have done very well out of integrating the SoftLayer platform into what was BlueMix, and is now IBM Cloud. This 2013 Forbes article on the acquisition sheds some light as to why this RedHat acquisition makes sense and is true to form for IBM.
IBM sees the shift of big companies moving to the cloud as a 20-year trend…
That was five years ago…and since then a lot has happened in the Cloud world. Hybrid cloud is now the accepted route to market with a mix of on-premises, IaaS and PaaS hosted and hyper-scale public cloud services being the norm. There is no one cloud to rule them all! And even though AWS and Azure continue to dominate and be front of mind there is still a lot of choice out there when it comes to how companies want to consume their cloud services.
Looking at RedHat’s stable and taking away the obvious Linux distro’s that are both enterprise and open sources the real sweet spot of the deal lies in RedHat’s products that contribute to hybrid cloud.
I’ve heard a lot more noise of late about RedHat OpenStack becoming the platform of choice as companies look to transform away from more traditional VMware/Hyper-V based platforms. RedHat OpenShift is also being considered as an enterprise ready platform for containerization of workloads. Some sectors of the industry (Government and Universities) have already decided on their move to platforms that are backed by RedHat…the one thing I would comment here is that there was an upside to that that might now be clouded by IBM being in the mix.
Rounding out the stable, RedHat have a Cloud Suite which encompasses most of the products listed above. CloudForms for Infrastructure as Code, with Ansible for orchestration…together with RedHat Virtualization together with OpenStack and OpenShift..it’s a decent preposition!
Put all that together with the current services of IBM Cloud and you start to have a compelling portfolio covering almost all desired aspects of hybrid and multi cloud service offerings. If the acquisition of SoftLayer was the start of a 20 year trend then IBM are trying to keep themselves positioned ahead of the curve and very much in step with the next evolution of that trend. That isn’t to say that they are not playing catchup with the likes of VMware, Microsoft, Amazon, Google and alike, but I truly believe that if they don’t butcher this deal they will come out a lot stronger and more importantly offer valid completion in the market…that can only be a good thing!
As for what it means for RedHat itself, their employees and culture…that I don’t know.
IBM sees the shift of big companies moving to the cloud as a 20-year trend