IBM will acquire HashiCorp in a deal valued at $6.4 billion, the company said on Wednesday, expanding its cloud-based software products to tap into an AI powered boom in demand. Software has been a bright spot for International Business Machines (IBM) as its consulting business grapples with more cautious spending by enterprises navigating higher interest rates.
IBM HashiCorp acquisition
IBM will pay $35 per share to acquire HashiCorp, a 42.6% premium to Monday’s closing price. HashiCorp’s shares had surged on Tuesday following media reports of the deal talks.
IBM reported adjusted earnings of $1.68 per share for the quarter ended March, compared to analysts’ average estimate of $1.60.
IBM revenue
IBM total revenue of $14.46 billion compared with LSEG estimates of $14.55 billion. Consulting segment sales were flat in the quarter.
“You’re seeing clients in this uncertain macroeconomic environment. You’re seeing clients that are tightening discretionary spending,” as per CFO Jim Kavanaugh.
Accenture had cut its fiscal-year 2024 revenue forecast in March as clients curbed spending on its consulting services.
IBM software business
The software business of IBM grew 5.5% in the first quarter. The company has doubled down on its cloud business as it becomes increasingly necessary to store and process the vast amounts of data employed in artificial intelligence programs.
The Big Blue’s “AI book of business” crossed $1 billion in the first quarter, growing sequentially. The book comprises actual sales and bookings from various offerings.
IBM Cloud expansion deal
IBM said the HashiCorp acquisition would be funded by cash on hand and would add to adjusted core profit within the first full year of closing, expected by the end of 2024.
California-based HashiCorp allows customers to establish and manage their infrastructures on the cloud.
“This is a smart deal for IBM. They’re buying a leader and it complements their existing portfolio,” Stephen Elliot, a vice president at market research firm International Data Corp, said.
Stock update
HashiCorp’s shares rose more than 4% in extended trading on Wednesday while IBM shares fell 7% as the company separately reported first-quarter revenue marginally below estimates.
