The multinational IT company IBM has reportedly made the largest software acquisition. The company has acquired US-based software company Red Hat for $34 billion, including debt.
The company is expecting to diversify its technology hardware and consulting business into higher-margin products and services. This particular acquisition is by far IBM’s biggest acquisition.
“The acquisition of Red Hat is a game-changer … IBM will become the world’s No. 1 hybrid cloud provider, offering companies the only open cloud solution that will unlock the full value of the cloud for their businesses,” IBM chief executive Ginni Rometty stated.
IBM, which has a market capitalization of $114 billion, will pay $190 per share in cash for Red Hat, a 62% premium to Friday’s closing share price. IBM, which has a market capitalization of $114 billion, will pay $190 per share in cash for Red Hat, a 62% premium to Friday’s closing share price.
Red Hat was founded in 1993 and specializes in Linux operating systems, the most popular type of open-source software, which was developed as an alternative to proprietary software made by Microsoft.
This acquisition clearly shows how older technology companies are turning to dealmaking to gain scale and fend off competition, especially in cloud computing, where customers using enterprise software are seeking to save money by consolidating their vendor relationships.
The IT giant is expecting that the deal will help it catch up with Amazon, Alphabet and Microsoft in the rapidly growing cloud business. IBM shares have lost almost a third of their value in the last five years, while Red Hat shares are up 170% over the same period.
Founded in 1911, IBM has acquired a lot of companies like cloud infrastructure provider Softlayer in 2013 for $2 billion, and the Weather Channel’s data assets for more than $2 billion in 2015. It also acquired Canadian business software maker Cognos in 2008 for $5 billion.