IBM’s October 28th announcement regarding their plans to acquire Red Hat might be a “big move”, but in some ways it does not come by complete surprise.
Last year the companies announced a partnership to insure that Red Hat’s OpenStack cloud platform and its Ceph Storage could run in IBM’s Cloud and be managed by the same tools they use to manage their on-premises deployments. This partnership, and now this acquisition, have certainly resulted in a lot of “buzz”, leaving many Red Hat users wondering, “how is this going to affect me?”. Although only time can tell, here is our high-level assessment of the acquisition and what to expect.
What’s the strategy behind the Red Hat acquisition? According to CNBC, the Red Hat acquisition “is by far IBM's largest deal ever, and the third-biggest in the history of U.S. tech. Excluding the AOL-Time Warner merger, the only larger deals were the $67 billion merger between Dell and EMC in 2016 and JDS Uniphase's $41 billion acquisition of optical-component supplier SDL in 2000.”
So why such a big move? IBM is acquiring Red Hat in order to make a significant investment in the market and to solidify their position as a leading hybrid cloud provider. On the topic, analyst Joel Fishbein told CNBC on Monday that IBM's $34 billion acquisition of Red Hat is a last-ditch effort by IBM to play catch-up in the cloud industry.”
While Fishbein and others might see this as IBM’s way of playing “catch-up” and becoming "relevant again in the space," Jim Whitehurst, President and CEO of Red Hat, has a different perspective. With optimism and a growth mentality, Whitehurst stated that “Joining forces with IBM will provide us with a greater level of scale, resources and capabilities to accelerate the impact of open source as the basis for digital transformation and bring Red Hat to an even wider audience – all while preserving our unique culture and unwavering commitment to open source innovation.”
How will this affect the cloud storage market? Analysts from Raymond James have said, “Category-leading software companies such as ServiceNow, Splunk, Tableau and Workday, along with converged infrastructure company Nutanix, could wind up getting taken. During Monday's trading Splunk and Workday were up 4 percent, while Nutanix was up 3 percent, and Tableau was up 1 percent.”
In addition, J.P. Morgan analysts (led by Sterling Auty) have identified 16 acquisition targets, stating that “the volume of technology mergers and acquisitions seems to be going up, with more than 70 so far in 2018.” In other words, we can expect to see Red Hat and IBM competitors respond with deals of their own, resulting in more mergers and/or acquisitions.
How will Red Hat users be affected? Now, to the question on everyone’s minds: How will these changes affect the Red Hat experience? And specifically, how will this acquisition affect the “open source-ness” that Red Hat users love?
Referring to itself, IBM published a press release stating that, “IBM will remain committed to Red Hat's open governance, open source contributions, participation in the open source community and development model, and fostering its widespread developer ecosystem.” IBM also promised to “maintain Red Hat's open source innovation legacy, scaling its vast technology portfolio and empowering its widespread developer community.”
IBM stated that “more details will unfold as to the exact implications that this acquisition will bring to Red Hat’s customers”, but until then, there doesn't seem much to worry about.
When and how will the Red Hat acquisition be executed? Although the acquisition has been approved by the boards of directors of both IBM and Red Hat, it is still subject to the approval of Red Hat shareholders. It is also subject to regulatory approvals and other customary closing conditions. It is expected to close in the latter half of 2019.
Red Hat’s website explains that, “upon closing of the acquisition, Red Hat will join IBM's Hybrid Cloud team as a distinct unit, preserving the independence and neutrality of Red Hat's open source development heritage and commitment, current product portfolio and go-to-market strategy, and unique development culture. Red Hat will continue to be led by Jim Whitehurst and Red Hat's current management team. Jim Whitehurst also will join IBM's senior management team and report to Ginni Rometty. IBM intends to maintain Red Hat's headquarters, facilities, brands and practices.” To the relief of Red Hat employees and enthusiasts, Whitehurst stated, “Importantly, Red Hat is still Red Hat. When the transaction closes, we will be a distinct unit within IBM and I will report directly to Ginni. Our unwavering commitment to open source innovation remains unchanged. The independence IBM has committed to will allow Red Hat to continue building the broad ecosystem that enables customer choice and has been integral to open source’s success in the enterprise. IBM is acquiring Red Hat for our amazing people and our incredibly special culture and approach to making better software. They understand and value how and why we are different and they are committed to allowing us to remain Red Hat while scaling and accelerating all that makes us great with their resources.”
Summary In short, Red Hat users shouldn't have anything to worry about. There will most likely be some commotion within the market in response to the acquisition, but as it stands, Red Hat and IBM seem to be committed to maintaining the Red Hat experience that users know and love. Even more, we can expect to see accelerated improvements.