by Scott Denne
The overwhelming shift toward cloud environments, mixed with reliable cash flow from pre-cloud companies, has taken M&A to unseen levels in a normally sleepy corner of the tech M&A market. IT infrastructure management vendors, those companies that make the software to monitor, manage and automate IT environments, fetched 10x the total value that such deals see in a typical year. The surge comes as legacy IT companies reach the inescapable conclusion that the cloud – from SaaS to IaaS – has forever changed IT.
According to 451 Research’s M&A KnowledgeBase, companies developing infrastructure management technology sold for a combined $94.4bn in 2018. To say that’s a record doesn’t suffice. Last year’s total came in six times higher than the previous annual high. Put another way, the total deal value for the sector was more than the combined total of the nine preceding years, which includes the previous sector record set in 2016.
In a market that typically sees 125-150 deals annually, a single transaction often skews the year’s total deal value. Certainly, IBM had such an impact with its $33.4bn acquisition of Red Hat last year. But it wasn’t a single outlier that made last year unique. It was an abundance of such deals. Since the dot-com crash, just eight infrastructure management companies have sold for more than $5bn, and five of them were sold last year. Both the largest (IBM’s Red Hat) and second-largest (Broadcom’s proposed $18bn purchase of CA Technologies) infrastructure management acquisitions were announced in 2018.
The growing dominance of Amazon and Microsoft Azure in the cloud market catalyzed the Red Hat deal. IBM inked the largest software acquisition of all time to carve itself an opportunity, as IT environments and applications spread among different cloud services. A similar rationale drove Salesforce’s $6.6bn purchase of MuleSoft – the largest ever done by that buyer – aiming to give the SaaS giant a stake in helping businesses integrate SaaS, hosted and on-premises applications.
451 Research’s Voice of the Enterprise surveys show how fast this future will arrive. In our Digital Pulse: Vendor Evaluations report, 44% of respondents told us that most of their IT workloads reside in traditional, on-premises infrastructure. Yet only 16% of them expect that will be the case in two years, as respondents spread their workloads across SaaS, on-premises private clouds, hosted private clouds and IaaS – each of which saw 15-20% predicting those deployment options would be home to the majority of their workloads.