In a move that has massive implications for DevOps teams across the enterprise, IBM today announced it is acquiring Red Hat in a deal valued at $34 billion.
Red Hat will join IBM’s Hybrid Cloud group as a distinct independent unit. Red Hat will continue to be led by Jim Whitehurst and Red Hat’s current management team. Whitehurst will join IBM’s senior management team and report to IBM CEO Ginni Rometty. IBM intends to maintain Red Hat’s headquarters, facilities, brands and services practices.
IBM expects to close the deal, which will be financed using both cash and debt, in the latter half of 2019. IBM also said the deal will be accretive within 12 months after close, as the combined entity moves to address a total market that spans application development and deployment, IT services and security and collectively exceeds $1 trillion, or more than one-fifth of the total global IT market valued at $3.7 trillion in 2018 by Gartner.
IBM and Red Hat have had a partnership in place for 20 years, spanning everything from reselling and supporting Red Hat Enterprise Linux (RHEL) to collaboratively working on open source projects such as Kubernetes.
IBM officials said they expect Red Hat to significantly bolster IBM’s hybrid cloud business, which already generates $19 billion a year in revenues. IBM noted that about 80 percent of application workloads have yet to move to the cloud.
The move to acquire Red Hat comes on the heels of Red Hat acquiring CoreOS, which augments the company’s existing open source expertise with a container management platform built on top of Kubernetes.
Once the deal is closed, IBM said the two companies will remain committed to open source software licensing, including initiatives such as Patent Promise, GPL Cooperation Commitment, the Open Invention Network and the LOT Network.
IBM and Red Hat also plan to continue to build and enhance existing Red Hat partnerships, including those with major cloud providers Amazon Web Services, Microsoft Azure, Google Cloud, Alibaba and others that compete directly with IBM Cloud.
It’s too early to say to what degree those cloud service providers will be open to continuing to work with Red Hat as unit of IBM. In recent months Red Hat increasingly has been positioning itself head to head against VMware, which operates as a unit of Dell Technologies. IBM also has a strong relationship with VMware that could change in the years ahead. What is clear, however, is that any deal of this magnitude usually begets others in very short order.