IBM acquires Red Hat – what’s the impact for you?

IBM RedHat

On October 28th, 2018 both Red Hat and IBM, in different press releases, announced that “IBM would acquire Red Hat to change the cloud landscape and to become world’s #1 hybrid cloud provider”.

The US Department of Justice approved IBM’s acquisition of Red Hat on May 3rd, 2019; and the European Commission provided a press release on June 27th that they also approve the acquisition of Red Hat by IBM.

“Red Hat and IBM both sell information technology (“IT”) solutions to enterprise customers. Red Hat’s main activities relate to open-source software and support services, while IBM is active in a wide variety of IT solutions, namely enterprise IT software, hardware and services.”

On July 9th, 2019 Red Hat announced that they closed the landmark acquisition by IBM. Briefly, IBM will acquire all of the issued and outstanding common shares of Red Hat for $190,00 per share in cash, representing a total enterprise value of approximately $34 billion. IBM preserves Red Hat’s independence and neutrality, and this will enable IBM to become one of the largest hybrid cloud providers.

How will this affect you?

What this acquisition means exactly to IBM and/or Red Hat customers has not been made very clear yet. However, we raised some questions internally that might be important for you as well, as an IBM and/or Red Hat customer:

  • Will IBM also audit RedHat customers?
    • And if so, how will IBM’s audit department incorporate Red Hat’s license compliance (SEAP) team?
  • What is the overall impact on RedHat customers?

Time will provide answers to these questions. At this moment, we can only guess.

Our view

IBM has an audit department (Enterprise Software Licensing) using Deloitte and KPMG as third-party auditors to verify the IBM software deployments. Red Hat developed in-house a license compliance department (SEAP) engaging with their customers regarding the correct application of subscriptions.

Red Hat will remain a distinct unit in IBM’s cloud and Cognitive Software segment to help Big Blue with growth, software revenue and their cloud business. Based on this, my guess is that, at first, SEAP will continue their path independently, as IBM’s compliance teams focus more on the on premises software than on the cloud business. Most IBM cloud products are not on the IBM compliance team’s major focus. At some point, if a more intensive integration between the two companies would take place, it might be that IBM will audit Red Hat customers. But by then, Red Hat customers are IBM customers anyway. An industry example is when Attachmate took over Novell, and both were later acquired by Microfocus. At this moment, Microfocus is a vendor with serious compliance activities for all the acquired products.

Software license compliance related, we’re already seeing some challenges at customers using cloud solutions:

– the CPU/Core count

– the unclarity that cloud providers is usually bringing

– the different licensing models of software vendors like Oracle or Microsoft, enforcing on their customers when licensing in the cloud

It looks like IBM and Red Hat will enter the same market and therefore the same challenges. If this will be a positive or negative impact for companies using IBM and Red Hat products remains to be seen. It surely is worth to watch the development and the possible software licensing impact.

The overall impact for both IBM and Red Hat customers is another crystal ball question. We see two major drivers for IBM to acquire Red Hat. First, IBM to become a real open source player in the market and second to not lose field in the cloud area. As IBM has a major presence in on premises environments, with Red Hat’s acquisition they can now move towards hybrid cloud. We have seen AWS and VMWare already taking on some serious partnerships in this field, enabling customers to connect existing on premises Datacentres running VMWare to AWS.

We will watch closely the moving forward of this acquisition and inform you on new developments. If you as an IBM or Red Hat customer already encounter some challenges, do not hesitate to contact us. We can assist you with looking at your case and advising on the possible next steps.