IBM's Red Hat acquisition is a 'desperate deal,' says analyst

  • IBM's $34 billion acquisition of Red Hat is a last-ditch effort by IBM to play catch-up in the cloud industry, says BTIG's Joel Fishbein.
  • "It's a desperate deal by a company that missed the boat for the last five years," Fishbein says.
  • The software maker will become a unit of IBM's Hybrid Cloud division, bringing it one step closer to becoming "relevant again in the space," Fishbein says.

IBM's $34 billion acquisition of Red Hat is a last-ditch effort by IBM to play catch-up in the cloud industry, analyst Joel Fishbein told CNBC on Monday.

"It's a desperate deal by a company that missed the boat for the last five years," the managing director at BTIG said on "Closing Bell." "I'm not surprised that they bought Red Hat, I'm surprised that it took them so long. They've been behind the cloud eight ball."

This is IBM's largest deal ever and the third-biggest tech deal in the history of the United States. IBM is paying more than a 60 percent premium for the software maker, but CEO Ginni Rometty told CNBC earlier in the day it was a "fair price."

The software maker will become a unit of IBM's Hybrid Cloud division and will bring IBM one step closer to becoming "relevant again in the space," Fishbein said.

"You either evolve or die. This is IBM's stake in the ground," he said. "If they didn't evolve their cloud business, unfortunately we would've seen IBM lead a slow long bleed."

IBM did not immediately respond to a request for comment on Fishbein's remarks.

The analyst said that although he did not have personal knowledge of the deal, it probably was a competitive situation based on the high price. He said he suspects that Microsoft, Oracle and Cisco were potentially involved or may have been looking at some of Red Hat's assets.

"We're in a cloud race right now, and they're all in play," Fishbein said. "Red Hat represented one of the few companies that had scale, more than a billion dollars in revenue."

Several analysts said that after the announcement of this merger, investors are looking at other cloud companies for potential deals, such as ServiceNow, Pivotal, Zscaler, Okta, Ellie Mae and Twilio, to name a few.