IBM Buys Red Hat, Plans to Bet Big on Cloud Services

The USD 34 billion deal between IBM/Red Hat is the industry’s largest-ever acquisition so far

Eclipsing the Facebook’s WhatsApp takeover worth USD 22 billion, and LinkedIn’s acquisition by Microsoft worth over USD 26 billion a couple of years ago, the biggest-ever technology deal is right here and creating waves of criticism and controversies.

IBM, the survivor of the first wave of success in IT, yesterday announced the decision to buy Red Hat in a whopping USD 34 billion deal. In the wake of the US stocks’ October sell-off, IBM becomes the first company stepping into a megadeal. The board of directors at both the companies have given a green signal to the deal that expects to close latest by the latter half next year.

The Red Hat acquisition is the company’s biggest so far and is believed to be a game changer for the cloud computing arm of IBM. However, the latter is to borrow heavily for this high-end deal. Under the hybrid cloud of IBM, Red Hat will be an independent unit that will reportedly emphasize open-source software.

According to experts, particularly on IBM’s part, security and Linux have been the chief drivers pushing the deal. While IBM continues to boast an annual revenue of over USD 20 billion through cloud alone, the company has been consistent on the viewpoint that the hybrid cloud is where the cloud computing evolution will take its next stop.

Despite a considerably high revenue representation, IMB cloud has been struggling in the race with the likes of Google, Amazon, and Microsoft. “Buying Red Hat targeting the cloud business will immediately position IBM as the hybrid cloud leader,” said an IBM spokesperson.

By some, the IBM/Red Hat deal is being looked at as a trigger for many such innovative mega-mergers. Whereas, others are criticizing it as an overpaid acquisition at the moment. Experts are also saying that Red Hat absolutely has no story for cloud that IBM is looking forward to target, and while IBM has been a declining business recently, Red Hat cannot be the solution and at such a high price.

Post the deal closure, the participants will however reportedly adhere to open source s/w licensing. Both the companies also confirm their plans to work on the enhancement of Red Hat’s existing partnerships to ultimately defeat the competition facing IBM cloud. The partnerships may include Google Cloud, Amazon Web Services, Alibaba, and Microsoft Azure.

While it’s still early to discuss the exact ramifications of this megadeal, it would not be an overstatement to expect such an enormous acquisition to beget others in no time.

Sharvari Rale

Sharvari has been a ghost writer for more than 7 years now, and specializes in the SEO content for a versatile range of business industries. A writer by the day and reader by the night, she has been into content marketing and corporate storytelling for the past 5 years. Being a marketing communications professional in technology, healthcare, and food innovation domains, Sharvari has been creating and promoting content for building organizational relationships. Other than writing, her interests include traveling, cooking, music, and political affairs.