Why IBM's acquisition of Confluent could signal an M&A gold rush

IBM (IBM) announced on Monday that it had acquired data infrastructure startup Confluent (CFLT) for $11 billion as it seeks to build a smart data platform for enterprise generative AI.

IBM will acquire all issued and outstanding shares for Confluent at $31 a share to complete the transaction

Confluent is a Silicon Valley-based company that provides an open-source data streaming platform for connecting, processing and governing reusable data in real time. IBM calls it "foundational for the deployment of AI."

Citing figures from the International Data Corporation (IDC), IBM estimates that one billion new logical applications will be on the market by 2028, which it says will reshape the architecture of technology across multiple industries.

As this happens, the need for real-time trusted data will become increasingly important for both applications and AI agents, IBM noted in a press release.

“IBM and Confluent together will enable enterprises to deploy generative and agentic AI better and faster by providing trusted communication and data flow between environments, applications and APIs,” IBM president and CEO Arvind Krishna said in a statement.

Krishna noted that “data is spread across public and private clouds, datacenters and countless technology providers” and through its acquisition of Confluent, IBM “will provide the smart data platform for enterprise IT, purpose-built for AI.”

IBM's shares dropped more than 6.5% in October after it reported slowing growth in its core cloud software business, raising concerns on Wall Street about the tech giant's ability to meet the surging demand for cloud services. JPMorgan analysts emphasized the need for the company to see an increase in its software performance in order to spur overall growth.

"IBM's software performance and outlook tend to carry more weight than the rest of the business due to the level of earnings contribution and value the business represents," JPMorgan said at the time.

IBM calls Confluent "a natural fit" for its hybrid cloud and AI strategy. Confluent is a cloud-native company built on Apache Kafka, an open-source data and event streaming platform.

Jay Kreps, CEO & co-founder of Confluent, said in a statement that the company was "excited by the potential to join IBM and to accelerate our strategy with IBM’s go-to-market expertise, global scale and extensive portfolio."

“Since its founding, Confluent has helped organizations unlock the full potential of their data, driving innovation in an increasingly complex IT landscape," Kreps said. "We are extremely proud of the work we’ve done in providing clients with a real-time data streaming platform for the next era of technology, including generative and agentic AI."

Confluent's stock is up 6.9% for the year.

A wave of consolidation could be on the horizon

RBC Capital Markets analysts see IBM's deal for Confluent as a further sign that the mergers and acquisitions (M&A) market for software companies is continuing to ramp up, noting that the deal volume in the software space is "up well over 50%" for the year compared to where it was in 2024.

RBC points to consolidation and opportunistic plays as the leading drivers for the dealmaking.

RBC analyst Matthew Hedberg sees a growing opportunity for M&A deals involving young "AI native" startups.

“We often hear from VCs and early-stage investors that it’s easier to invest in companies that are a year or two old than in companies five to ten years old, because they've been built in this AI era,” he said. “They're often built not on a seat-based model but based on consumption or ROI or a value-based pricing mechanism.”

Hedberg added that there "will certainly be hyperscaler or large software platform vendors looking at smaller AI startups as a way to stay in front of their peers."

RBC capital sees about 20 names in the software space that could be next in line for an acquisition, as the firm points to a likely uptick in consolidation.

"Plenty of software companies may not survive the next wave of disruption — they just don’t know it yet," Hedberg said. "M&A, both strategic and private equity, will certainly take care of some of that, but some companies are going to be effectively left without a dance partner."