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In a bid to strengthen its cloud management services offerings, Red Hat Inc. (RHT - Snapshot Report) recently entered into a definitive agreement to acquire Mahwah based cloud management and automations solutions provider ManageIQ for $104.0 million.

Privately held ManageIQ provides hybrid cloud operations management solution that helps enterprises to deploy and manage private clouds and virtual infrastructure. ManageIQ is already a member of Red Hat Enterprise Virtualization Certified Partner program. Apart from Red Hat, ManageIQ also partners several bellwethers in the cloud computing market such as VMware Inc (VMW - Snapshot Report), Citrix Systems Inc. (CTXS - Analyst Report) and NetApp Inc. (NTAP - Analyst Report).

This acquisition will not only expand Red Hat’s Infrastructure-as-a-Service (IaaS) solutions (Red Hat CloudForms), but will also strengthen its enterprise virtualizations and cloud management operations. Moreover, this acquisition has placed Red Hat in the same league of VMware and Citrix - the leaders in the server and desktop virtualization market.

Red Hat does not expect the current acquisition to impact its revenue estimates for this fiscal year, but expects its quarterly operating expenses (excluding stock-based compensation and amortization of acquisition-related intangible assets) to increase by $2 million.

We expect Red Hat to continue pursuing strategic acquisitions of technology start-ups that can be easily synchronized with its product lines. These acquisitions will help the company to expand its customer base over the long term.

We expect the investments made by the company to expand its product portfolio through new product launches in the cloud and virtualization segments. However, we believe that sluggish macroeconomic environment could negatively impact IT spending. Significant foreign exchange volatility will act as a headwind in the near term. Moreover, seasonality in the services business and increasing investment may hurt profitability in the near term.

We maintain our Neutral recommendation over the long term. Currently, Red Hat has a Zacks #3 Rank (Hold).

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