Insight Bite: IBM’s Biggest Acquisition yet Leaves Commentators Confused

Commentators have been left confounded by IBM’s recent acquisition of Red Hat – questioning the appeal of a company that prides itself on open-source code, meaning much of the development is free for the taking.

Instead of selling software, hybrid cloud pioneers Red Hat sell services and subscription packages based on the Linux operating system: a model that has been fantastically lucrative, leading the company to crack 20 percent year-over-year growth.

It’s this development potential which IBM aims to capitalise on, using Red Hat’s cloud expertise to boost the company’s edge against competing providers like Amazon, Google and Microsoft.

“The acquisition of Red Hat is a game-changer,” said IBM CEO Ginni Rometty. “It changes everything about the cloud market. IBM will become the world’s #1 hybrid cloud provider, offering companies the only open cloud solution that will unlock the full value of the cloud for their businesses.”

The purchase could also be a game-changer for the company finances – IBM’s bet on hybrid cloud comes at a time when the company is trying to reverse a drawn-out decline in revenues and profit margins, one that has caused investors to flee the falling stock en masse.

However, the deal might not yet be complete: Red Hat has long been on the radar of the major players in cloud computing, and some commentators are suggesting that another tech giant could swoop in at the last minute with a higher offer. Google, for example, is also thought to be interested in the firm, and its burgeoning cloud sector is now under new management.

As the market heats up, enterprise software companies – particularly those offering SaaS and cloud-based products – continue to fetch valuations at higher multiples. At $34 billion, or $190 a share, the purchase – if completed – will be the largest software acquisition in history, and a defining moment for dealmaking in 2018.

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