IBM buys Terraform provider HashiCorp for 6.4 billion US dollars

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IBM is buying HashiCorp, a provider specializing in tools for the cloud business, for 6.4 billion US dollars. Citing insider circles, the news agency Reuters hinted at IBM's next billion-dollar acquisition on April 23, 2024, and Big Blue has now officially confirmed the deal.

The news has caused some surprise on the scene. However, IBM has been on a regular shopping spree since its acquisition of Red Hat in 2018: just last year, the company bought Apptio for 4.6 billion dollars - a platform provider for managing business expenses and assets.

Synergy effects for the cloud business

With the acquisition of HashiCorp, IBM says it is aiming to create a comprehensive end-to-end hybrid cloud platform. HashiCorp brings the right resources and skills to exploit synergy effects in the proven growth areas of Red Hat, Watsonx, data security, IT automation and consulting.

IBM is thus primarily alluding to the services and tools from HashiCorp that are important for the cloud business - including Terraform and Vault in particular. Terraform is one of the most widespread infrastructure-as-code tools that can be used to automatically create, manage and dismantle server and network infrastructure - regardless of the actual infrastructure underneath. However, HashiCorp caused a great deal of unrest in the open source camp last year with a change of licensing direction towards the Business Source License (BSL) 1.1.

Between open source and enterprise business

In the wake of the takeover by IBM, some voices in the open source community are hoping or even demanding a return to free licenses. Kelsey Hightower, one of the co-creators of the container orchestration platform Kubernetes, spontaneously spoke out on X, recommending that IBM switch all licenses for HashiCorp products back to the OSS license Apache 2.0.

However, given IBM's traditional focus on the enterprise business, such considerations are unlikely to have been at the forefront of the acquisition.

HashiCorp's valuable treasures: Vault, Terraform & Co.

HashiCorp also stands for more than Terraform. The simple management of passwords and comparable secrets has been an important topic since the mid-2010s, and is becoming even more important in the wake of zero-trust initiatives. With Vault, HashiCorp provides IT managers with a customized platform that also supports numerous software manufacturers and can be used independently of the respective cloud service provider. According to many experts, these capabilities make Vault HashiCorp's real crown jewel.

Vault is therefore also likely to have made HashiCorp particularly attractive to IBM from a financial perspective, as Sören Martius, CEO of Terramate – a platform for managing Terraform and OpenTofu – explains in his brief analysis on LinkedIn.

In its most recent financial figures, published in March 2024, HashiCorp was able to announce a significant increase. Revenue in the final quarter of the 2024 financial year amounted to USD 155.8 million (up 15% on the same quarter of the previous year), while total revenue for 2024 climbed 23% to USD 583.1 million. However, this contrasts with a net loss (in accordance with GAAP) of USD 31.6 million for the fourth quarter.

The discussion surrounding Terraform and the Terraform fork OpenTofu adopted by the Linux Foundation may have contributed to the losses in the past quarter, especially since services make up a lion's share of HashiCorp's business. However, the acquisition by IBM should give HashiCorp access to Big Blue's large network of enterprise customers and thus open up further growth. However, it remains to be seen what concrete consequences the acquisition will have for HashiCorp, its products and customers, as well as for the open-source community.

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