Mergermarket report - IBM/Red Hat in the context of global and US software M&A

Data Received : 31-Oct-2018
Location : Singapore

Following IBM’s announcement that it will be acquiring open source enterprise software maker Red Hat for USD 33bn, Mergermarket data sheds some light on deal activity within the computer software space:
  • Red Hat/IBM is the second-largest computer software deal ever recorded globally, according to Mergermarket data (which dates back to 1998).
  • In terms of computer software M&A in the US alone, thus far in 2018 the sector has already hit a record high value of USD 138.3bn, having surpassed all previous full years on record.
    • IBM/Red Hat accounts for nearly a quarter of total US software deal value in the year to date.
    • Globally, software M&A has reached USD 187bn to date, and is on track to at least meet 2015’s full year record high of USD 197bn. The US therefore has accounted for 74% of total global software deal value.
  • By deal count, software M&A in just the US has already seen a record 675 transactions in the YTD (1 January through 29 October), which has also surpassed the comparable period for all previous years on record.
    • Globally, software M&A has seen 1,471 transactions to date, and has already surpassed last year’s 1,328 registered in YTD 2017. In fact, 2017 ended with a record high of 1,780 software transactions in total through the end of the year, which means that 2018 could beat that record and finish as another banner year for the software industry. The US therefore has accounted for 45.9% of global software in terms of deal count.
  • Red Hat is IBM’s largest transaction ever. The second-largest acquisition that the IT giant made was a decade ago when it bought Cognos Inc for USD 4.4bn. More recent IBM acquisitions include Oniqua Holdings, bought in June of this year, and Armanta Inc, bought in May.
  • Red Hat/IBM marks the second of two mega-deals (>USD 10bn) recorded so far this year – out of seven total ever recorded globally – in the software space.

 Some comments:

“IBM has been in need for some time of catching up with other tech giants such as Amazon and Microsoft in making a sizeable investment like this in the cloud, and it makes sense that IBM would pay such a large amount for a company like Red Hat, to try to outbid any potential competition. The deal with Red Hat marks a transformation for the company more toward hybrid cloud computing after years of seeking growth with mixed results, such as when it made big bets on its AI system Watson while its traditional IT business has shrunk. It’s clear that CEO Ginni Rometty intends, with this deal, to try to propel IBM back into the ranks of the industry’s top players after falling behind in recent years, and that the company also felt the need to acquire outside tech instead of spending years trying to develop it in-house. The question now is how IBM will successfully integrate Red Hat.” –Elizabeth Lim, Senior Analyst at Mergermarket