Red Hat shareholders are the most obvious winners in the deal, garnering a huge premium for their shares, which are rising 45% to $170.07 Monday on news of the deal. IBM shares were down nearly 5% to $118.94 just minutes before Monday's close.
However, IBM's real win might come in human capital rather than share inflation as it adds a community of about 8 million developers to its roster.
"We now have access to the world's largest developer community," IBM CEO Ginni Rometty said, summing up one of the major perks of the deal.
The open source nature of Red Hat also offers a more modern feel and appeal for developer communities as they digest the massive shakeup in their industry.
#IBM to acquire #RedHat. IBM to maintain Red Hat's open source innovation legacy, scaling its vast technology portfolio and empowering its widespread developer community #opensource #Linuxhttps://t.co/OIl4AIZ6IK— Pier Luigi Rotondo (@PGRotondo) October 29, 2018
"We've been dedicated both to working with developers, and we will continue to invest, and even increase our investment in open source communities," Red Hat executive vice president Paul Cormier added. "That's another area that we see very, very much working together and really expanding in this space."
Talent to Tout
Size does matter, but the skill of the developers IBM will acquire is equally, if not more, important.
A report prepared by Semmle data scientist Albert Ziegler noted that Red Hat is among the top three best firms of its kind in the world.
Given the skills gap present in technology, the large amount of code RedHat developers are capable of writing, and writing well, will serve to accelerate IBM's advances in ways it could not have prior to the acquisition.
The addition of so many talented open source developers is reminiscent of Microsoft's (MSFT) acquisition of GitHub. That deal, which closed on Friday, added to Microsoft's cache as a promoter of developer-friendly open source coding and added pivotal talent to their roster that has served them well by all accounts so far.
If IBM can keep adding game-changing talent, it might be able to shrug off its "uncool" connotation in a similar way to what Satya Nadella has done at Microsoft.
"Another reason why this combination works so well for Red Hat is IBM's long history and commitment and participation in open source communities and a focus on the developer ecosystem," Red Hat CEO James Whitehurst told analysts on Monday morning. "We believe together that we can be the world's most powerful advocate for open source development."
An ecosystem is a familiar word for the developer community, which through its democratized nature has the power to make or break companies.
Nels Wangensteen, managing partner and portfolio manager at Maytech Global Investments, an investment advisor and asset manager that oversees $179.1 million in assets told Real Money that popularity with developers is of paramount importance.
"You need to think of these companies as ecosystems," he said in an interview with Real Money earlier in the fall. "They need a huge developer community behind them."
Thus, the company's decision to "maintain Red Hat's open source innovation legacy, scaling its vast technology portfolio and empowering its widespread developer community" might prove a vital concession to many apprehensive Red Hat employees.
Heading for the Exits?
That said, there is a degree of fear regarding potential "culture shock" as RedHat developers are absorbed into the perceived corporate nature of IBM and many fear that talent will simply stream out of IBM's clutches.
Dear @IBM let's make a deal:
- leave my code open
- don't tread on my @RedHat culture
and most important
- don't try to turn this 60 hrs/week enthusiast developer into a sad 40 hrs/week badge user and spreadsheet filler
and we will be friends for long long time— Mario Fusco �������� (@mariofusco) October 29, 2018
"With IBM hoovering up Red Hat, two things are happening. A massive endorsement of the open source software (OSS) movement by the number one laggard in the market which is great for customer adoption," Beau Vrolyk, managing partner at Vrolyk Ventures said in his take on the deal. "Second, a massive outflow of OSS talent into the market as folks exit Red Hat."
In support of Vrolyks's take, many are noting that technology recruiters are out in force to scout Red Hat talent.
"All the recruiters (are) looking for "Red Hat" on LinkedIn right now," RedHat senior software engineer Veronica Lopez wrote on Twitter, noting that the race for talent that might exit is already on and in the face of developers.
Investors will need to be watchful of the job market as IBM's biggest win could slip through their fingers.
For now, IBM investors will hope the concessions to open source hold their newfound workforce together.