Summary
- From a complementary and growth standpoint, Cloudera fits all the criteria IBM should be looking for in an M&A candidate.
- Cloudera can provide IBM — which now owns Red Hat — an immediate leadership position in the Hadoop/Spark ecosystem.
- With $12 billion in cash and marketable short-term investments and long-term marketable securities, IBM can buy Cloudera four times.
When a company with tons of cash, yet short on growth wants to enter new markets, M&A is usually the quickest route to gaining access, and in some cases, market share in industries that would otherwise take years to build. And that seems be the strategy that International Business Machines (IBM) has adopted in recent years — albeit unsuccessfully. But now could be an ideal time to buy IBM shares.
The company, affectionately known as “Big Blue,” is now under a new regime, which, in my opinion, has an opportunity finally fix the company’s growth deficiency. I think one of the major steps would be to acquire Cloudera (CLDR), which has a strong portfolio of enterprises services for private, hybrid and public cloud platforms - many of which include databases, data processing, AI and machine learning tools.
Buying Cloudera would immediately change IBM's growth trajectory, turning the once-prominent company into precisely what it has marketed itself as - an intelligence think tank. Why now? Shares of Cloudera - a data analytics platform - have been under heavy selling pressure recently, falling as much at 22% in the past three trading days, driven by a combination of factors. Aside from delivering mixed first-quarter earnings results, the management also issued downbeat second-quarter and full-year guidance.
But the main the reason for Cloudera's recent decline could also be what investors believe to be lack of any real suitor. I say “real” because Bloomberg reported that the company has explored a sale “after receiving interest.” According to the report, Cloudera has consulted financial advisors to “evaluate its options.” Without any real substance to the claim, the CLDR stock has pulled back after spiking some 19% Tuesday. Investors have seemingly taken the “fool me once” approach towards the rumors.
There have bee repeated rumors of a sale ever since Robert Bearden’s appointment as CEO in January of this year. This is in part because Bearden has developed a propensity to do deals. Not only did he sell Hortonworks to Cloudera in January 2019, he also sold Docker's enterprise business to Mirantis — each within the past two years. And now, as Cloudera’s CEO, Bearden could be looking for the next strategic deal. And without question, activist investor Carl Icahn, who owns an 18.4% stake in Cloudera, along with two board seats, would be in favor of deal.
