IBM’s $34 billion Acquisition of Red Hat

By Orlando Poraqi (Bocconi University) 09/11/2018 |


Overview of the deal

  • Acquirer: IBM

  • Target: Red Hat

  • Estimated value: $34 bn

  • Announcement date: 28/10-18

  • IBM Advisers: Lazard, Goldman Sachs, JPMorgan Chase

  • Red Hat Advisers: Guggenheim Partners, Morgan Stanley

The transaction is IBM’s biggest purchase in its 107-years history and an all-time third in the USA IT industry. Astonishingly, it currently represents a quarter of the total value of tech M&A in the US this year. It comes after Microsoft, Salesforce, Cloudera and Broadcom acquired data platform and cloud industry players in 2018, for a total of almost $40 bn. Throughout this last merger wave, the NY-based company shares have lost 30% of their value in the past 5 years, while Red Hat stocks are up 170% over the same period of time.

IBM agreed to pay $190 cash per each Red Hat share, representing a 63% premium to Friday’s $116.68 closing figure. The high premium paid surpasses the average 30-days premium for 2018 deals of 34% and the even higher 37% premium paid in tech M&A, which caused IBM stock price to plummet as much as 5% on the first trading day after the deal announcement.

"Knowing first-hand how important open, hybrid cloud technologies are to helping businesses unlock value, we see the power of bringing these two companies together, and are honored to advise IBM and commit financing for this transaction" -JPMorgan CEO Jamie Dimon.

Company details (International Business Machines Corporation)

International Business Machines Corporation (IBM) is an American information technology company. Its major inventions span from the barcode to magnetic stripe cards and RDBMSs, floppy disks and the first DOS-run Microsoft PC.

- Founded in 1911, headquartered in Armonk, NY, USA

- CEO, Chairman and President: Virginia Rometty

- Number of employees: 380,300

- Market Cap: $112.8 bn - EV: $141.7 bn

- LTM Revenue: $80.4 bn - LTM EBITDA: $16.6 bn

- LTM EV/Revenue: 1.76x - LTM EV/EBITDA: 8.54x

Company details (Red Hat, Inc.)

Red Hat is an American company, leading provider of open-source software solutions. It leverages a community-powered approach to offer cutting-edge cloud, middleware, Linux, storage and virtualization technologies. It also pioneers the hybrid cloud industry, where it develops solutions to integrate private, public, proprietary and third-party management information systems.

- Founded in 1993, headquartered in Raleigh, North Carolina, USA

- CEO: Jim Whitehurst

- Number of employees: 12,212

- Market Cap: $30.7 bn - EV: $29.4 bn

- LTM Revenue: $3.3 bn - LTM EBITDA: $633 mn