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Analysis of IBM Red Hat Agreement Means IBM Pricing Is Reasonable and Expects Adequate Increase in Profits 
Analysis of IBM Red Hat: This is the hybrid cloud market.
IBM was a latecomer at the cloud party, but at least, with its agreement with Red Hat, it has the opportunity to become the main developer of the hybrid cloud market, reveals a new badysis of IBM Red Hat agreements.
The badysis is courtesy of RBC's Amit Daryanani, who suggests that IBM should increase its earnings per share, which will justify the price it paid.
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He said that the impetus for IBM would come from multiple opportunities:
- First, the income trajectory of Red Hat.
- With the opportunity to use the Red Hat distribution for cross-selling IBM technology and services related to IBM, IBM middleware and badytics.
- Combine Red Hat services, including OpenShift, which rivals SakesForce's Heroku and IBM services.
Amit Daryanani said that Red Hat would benefit from "the size, presence of the company and marketing in the IBM market, in addition to the service capabilities of the acquirer".
The bottom line
But what does all this mean in dollars and cents?
RBC's badysis predicts that IBM's earnings per share will rise from $ 13.80 per share to $ 15. The drilling forecasts as follows:
• earnings per share of $ 0.10 to $ 0.20 from growth in IBM's "core" revenues;
• $ 1.00 improved margins – before taxes
• $ 0.10 to $ 0.20 of share buybacks in 2019;
• $ 1.00 on the gross increase of Red Hat;
• $ 0.20 to $ 0.40 of commercial synergies with Red Hat;
• $ 0.75 to $ 1.25 of separate tax benefits.
On the other hand, the interest on the cost of financing the transaction should cost a dollar per share and IBM should also experience an impact of a higher tax rate of 1.10 to 1.20 dollars per share.
Decompose the IBM / Red Hat contract in the context of the software mergers and acquisitions space
Where the IBM / Red Hat transaction is in the context of global and US software mergers and acquisitions – according to Mergermarket data
In total, Amit Daryanani's badysis of IBM Red Hat reveals that the agreement represents nine times the revenue expected by Red Hat over the next 12 months, after the expected EBITDA (earnings before interest, taxes, depreciation and amortization) of Red Hat compared to the industry median for software mergers and acquisitions of 88.
Finally, the ratio of enterprise value / free cash flow – EV / FCF – is 33, compared to an average of 56 for recent transactions in this area.
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