IBM to buy Confluent in US$11bn deal

IBM will buy data infrastructure company Confluent in a deal valued at US$11 billion ($16.6 billion), ramping up its cloud-computing offerings to capitalise on an AI-driven demand boom. 

Big Blue, under CEO Arvind Krishna, has doubled down on M&A to beef up its cloud and software business - a high-growth, high-margin area - as customers invest to upgrade their digital infrastructure to house complex artificial intelligence applications. 

Confluent provides technology needed to manage massive, real-time data streams for artificial intelligence models. 

"IBM and Confluent together will enable enterprises to deploy generative and agentic AI better and faster," Krishna said in a statement.

"With the acquisition of Confluent, IBM will provide the smart data platform for enterprise IT, purpose-built for AI."

The companies began initial talks about the possibility of a deal over the US summer, building on their existing relationship through IBM’s partner network, according to a source familiar with the discussions.

After IBM signaled its interest, Confluent hired advisers and launched a formal auction process, but IBM ultimately prevailed, according to a source familiar with the matter.

As part of the deal, Confluent CEO and co-founder Jay Kreps is joining IBM Software and will report to Rob Thomas, an IBM spokesperson said.

Centerview advised IBM, while Morgan Stanley advised Confluent. Cooley served as Confluent’s legal counsel, and Paul Weiss advised IBM.

The offer price of US$31 per share represents a premium of around 34 percent to Confluent's last close.

Confluent's shares surged nearly 30 percent, while IBM was up marginally in early trading. 

The Confluent stock is up nearly 44 percent since October 7, the last trading session before Reuters reported that the company was exploring a sale after attracting acquisition interest.    

"IBM is buying the critical data firehose that supports the AI hype," said Michael Ashley Schulman, chief investment officer at Running Point Capital. 

"With this purchase, IBM improves ... recurring revenue, tightening its grip on large enterprises."

IBM has long turned to deal-making to gain scale and fend off competition, especially in cloud computing.

In April last year, the company bought cloud firm HashiCorp in a deal valued at US$6.4 billion.

Its US$34 billion deal for Red Hat in 2019 is credited by analysts as the central catalyst that boosted its cloud business. 

IBM will fund the Confluent deal with cash on hand and the transaction is expected to close by the middle of 2026. 

The deal is expected to boost IBM's adjusted core earnings within the first full year of the transaction's completion and it will add to free cash flow in year two.