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

IBM shares fell up to 9% in extended trading on Wednesday after the hardware, software, and consultancy provider announced the acquisition of cloud software maker HashiCorp and reported lower-than-expected sales for the first quarter.

In a statement, IBM stated that it intends to pay $35 per share in cash for HashiCorp in a transaction valued at $6.4 billion, net cash. The Wall Street Journal claimed on Tuesday that IBM was close to acquiring HashiCorp, which boosted share prices. Bloomberg reported earlier on Wednesday that IBM planned to pay $35 per share.

The transaction would increase adjusted profits before interest, taxes, depreciation, and amortization in the first full year after closing, and free cash flow in the second year following closing. IBM anticipates the transaction to finalize by the end of 2024. If the transaction is completed, Dave McJannet, CEO of HashiCorp, would report to Rob Thomas, IBM’s senior vice president in charge of software, according to a spokeswoman.

HashiCorp would complement Red Hat, which has helped IBM’s revenue growth since its $34 billion acquisition in 2019. IBM now sells Red Hat’s Linux operating system for usage in numerous public clouds, making it a neutral entity.

HashiCorp pioneered open-source software, which developers use to manage cloud infrastructure. HashiCorp has generated income from premium versions of Terraform cloud management software and other goods.

Shares of HashiCorp began trading on the Nasdaq in 2021. However, revenue growth has stalled, and the corporation continues to post losses. Nonetheless, it generates income at a quicker rate than IBM.

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

According to CEO Arvind Krishna, the combination should encourage more clients to contact IBM.

HashiCorp shares rose 4% in extended session following the acquisition news.

Here’s how IBM performed in compared to the consensus of analysts polled by LSEG:

Earnings per share: $1.68 adjusted, versus $1.60 projected.
Revenue: $14.46 billion, compared to $14.55 billion predicted

IBM’s revenue climbed by about 1.5% year on year during the quarter, according to a statement. This is the company’s third revenue miss in the past five quarters.

Software revenue climbed by around 6% to $5.90 billion, falling short of the StreetAccount-surveyed analysts’ consensus of $5.96 billion. Red Hat’s revenue increased by 9% during the quarter in constant currency.

IBM’s consulting revenue came in at $5.19 billion, slightly below than the StreetAccount average of $5.20 billion.

“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 in a statement.

Infrastructure revenue reached $3.08 billion. It fell 0.7% but came in ahead of the StreetAccount average of $2.94 billion.

During the quarter, IBM said that it was deploying artificial intelligence assistants to its 160,000 consultants to enhance productivity, while the business closed the sale of The Weather business to Francisco Partners.

Despite the after-hours move, IBM shares are up almost 13% this year, surpassing the S&P 500 index, which is up 6% during the same period.