IBM to acquire HashiCorp in $6.4 billion deal, reports another revenue miss

IBM
shares
slipped
as
much
as
9%
in
extended
trading
Wednesday
after
the
hardware,
software
and
consulting
provider
said
it
would
acquire
cloud
software
maker


HashiCorp
and
reported
first-quarter
revenue
that
was
lower
than
analysts
had
predicted.

In
a

statement,
IBM
announced
that
it
intends
to
pay
$35
per
share
in
cash
for
HashiCorp
in
a
deal
with
a
$6.4
billion
enterprise
value,
net
of
cash.
On
Tuesday,
The
Wall
Street
Journal

reported
that
IBM
was
getting
close
to
acquiring
HashiCorp,
sending
shares
upward.
Bloomberg

said
earlier
on
Wednesday
that
IBM
was
looking
to
offer
$35
per
share.

The
deal
would
be
accretive
to
adjusted
earnings
before
interest,
taxes,
depreciation
and
amortization
in
the
first
full
year
after
close,
and
accretive
to
free
cash
flow
in
the
second
year
after
close.
IBM
said
it
expects
the
transaction
to
close
by
the
end
of
2024.
Dave
McJannet,
HashiCorp’s
CEO,
will
report
to
Rob
Thomas,
IBM’s
senior
vice
president
in
charge
of
software,
if
the
deal
goes
through,
a
spokesperson
said.

HashiCorp
would
complement
Red
Hat,
which
has
contributed
to
IBM’s
revenue
growth
since
the

$34
billion
acquisition
in
2019.
IBM
now
sells
Red
Hat’s
version
of
the
Linux
operating
system
for
use
on
multiple
public
clouds,
making
it
a
neutral
entity.

HashiCorp
pioneered
open-source
software
that
developers
rely
on
to
control
cloud
infrastructure.
Premium
versions
of
the
Terraform
cloud-management
software
and
other
products
have
brought
revenue
to
HashiCorp.

In
2021
HashiCorp
shares

started
trading
on
the
Nasdaq.
But
revenue
growth
has
slowed,
and
the
company
has
continued
to
report
losses.
Still,
it’s
adding
revenue
at
a
faster
pace
than
IBM.

“We
see
multiple
drivers
of
product
synergies
within
IBM
and
accelerating
growth
for
HashiCorp,”
Jim
Kavanaugh,
IBM’s
finance
chief,
said
on
a
conference
call
with
analysts.
There
are
short-term
cost
synergies
as
well,
Kavanaugh
said.

The
combination
should
result
in
more
clients
wanting
to
talk
to
IBM,
CEO
Arvind
Krishna
said.

HashiCorp
shares
moved
4%
higher
in
extended
trading
following
the
acquisition
announcement.

Here’s
how
IBM
did
in
comparison
with
the
consensus
among
analysts
polled
by
LSEG:

• 
  Earnings
  per
  share:
  $1.68
  adjusted
  vs.
  $1.60
  expected
• 
  Revenue:
  $14.46
  billion
  vs.
  $14.55
  billion
  expected

IBM’s
revenue
increased
around
1.5%
year
over
year
during
the
quarter,
according
to
a

statement.
This
marks
the
company’s
third
revenue
miss
in
the
last
five
quarters.

Revenue
from
software,
at
$5.90
billion,
increased
about
6%
and
was
below
the
$5.96
billion
consensus
among
analysts
surveyed
by
StreetAccount.
Red
Hat
revenue
grew
9%
during
the
quarter
at
constant
currency.

IBM’s
consulting
revenue
came
in
at
$5.19
billion,
down
slightly
and
just
under
the
$5.20
billion
StreetAccount
consensus.

“We
saw
both
a
lengthening
of
backlog
duration
driven
by
large
scale
digital
transformations
and
a
reduced
level
of
revenue
realization
in
the
quarter
as
clients
tighten
discretionary
spending,”
Kavanaugh
said.

Infrastructure
revenue
totaled
$3.08
billion.
It
declined
0.7%
but
came
in
higher
than
the
StreetAccount
consensus
of
$2.94
billion.

During
the
quarter,
IBM
said
it
was
providing
its
160,000
consultants
with

artificial
intelligence
assistants
to
boost
productivity,
and
the
company
completed
the
divestiture
of

The
Weather
Company
to
Francisco
Partners.

Notwithstanding
the
after-hours
move,
IBM
shares
are
up
about
13%
so
far
this
year,
outperforming
the
S&P
500
index,
which
is
up
6%
over
the
same
period.

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