IBM's Red Hat acquisition: Here's what the mega deal means for India

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IBM on October 28 made its biggest-ever acquisition- that of open source software company Red Hat for $34 billion, and the deal could have some impact on the India operations of the combined entity, feel experts.

Calling the deal a "game changer", IBM chief executive Ginny Rometty said in a joint statement with Red Hat that it will make IBM the world's "#1 hybrid cloud provider".

Red Hat has helped EPFO and the BSE in revamping their data infrastructure and its clientele includes the likes of National Stock Exchange (NSE), Aadhaar, GST, Life Insurance Corporation of India (LIC), SBI Insurance and most core banking services across India.

IBM will pay cash to buy all shares in Red Hat at $190 each, premium of 63 percent to Red Hat's closing share price of $116.68 on October 26, before the deal was announced.

"The deal will have implications on technology and sales. It will give IBM more teeth against AWS (Amazon Web Services), Google, Microsoft and VMware," said Sanchit Vir Gogia, founder and CEO of Greyhound Research.

He further said that AWS and Google do not have a strategy on hybrid cloud. AWS has tied up with VMware to address this.

"That space will be challenged significantly since customers will now have access to both open source virtualisation (offered by RedHat) and IBM enterprise support for critical workloads," he added.

Hybrid cloud uses a mix of on-premises, private cloud and third-party, public cloud services with integration between the two platforms.

The global hybrid cloud market size is expected to grow from $44.60 billion in 2018 to $97.64 billion by 2023, at a compound annual growth rate (CAGR) of 17.0 percent during the same period, according to research firm MarketsandMarkets.

Santhosh Rao, Senior Director Analyst at research firm Gartner, said the deal is 'interesting'.

"We’ll have to see how IBM’s public and hybrid cloud shapes up post the deal. It depends on how they integrate Red Hat with existing IBM products," he added.

On the issue of employee impact, Gogia said the impact would be minimal.

"In terms of employees, there will be some overlap, and restructuring but a bloodbath is unlikely. Talent impact will be minimal from an overlap perspective since both companies have a very different DNA," he said.

IBM employed 366,600 people in wholly owned subsidiaries globally last year, and over 130,000 in India alone.

As of February 28, 2018, Red Hat had about 11,870 employees.

Both companies have a strong R&D ecosystem in India, added Gartner's Rao.

Where the combined entity could benefit from the deal in India is in government business as well as financial services.

The Indian government in 2015 adopted an open source software promotion policy, which makes it mandatory for all software applications and services of the government be built using open source software.

Rao said the deal with Red Hat will help IBM show it is "open source ready".

In addition, added Gogia, the deal will help Red Hat in the financial services space. "A lot of large financial services firms used to get cold feet (signing on Red Hat) since Red Hat is open source. Now with the size and scale of IBM, sales will be able to drive confidence among clients," he said.