GitLab is reportedly up for sale

GitLab has reportedly garnered interest from buyers and is considering a sale. As AI and cloud computing fuel acquisitions in the technology sector, these mergers and acquisitions are increasingly under review.

Company overview and market position

At a valuation of about $8 billion, GitLab has positioned itself as an essential player in the software development space. Its platform automatically integrates various tools and provides a common tool for software design by development, operations, and security teams. GitLab has over 30 million registered users and is used by over half of the Fortune 100 companies, making it a significant player in this space.

Interestingly, GitLab’s headquarters are based in San Francisco, but it runs as a completely remote company with all its employees working from different parts of the globe. This unique structure has helped position GitLab as a tech industry trailblazer in the remote work movement.

People familiar with the matter said GitLab has engaged investment bankers to help. There are several prospective buyers in the mix for the company, but apparently, there may now be a leading candidate—cloud monitoring firm Datadog, with a market value of $44 billion. Its customer-service software allows computer programmers and others to work together using cloud-based tools while keeping tabs on their productivity, especially when more people work remotely.

The chances of a deal are said to be weeks away, if not non-existent. The confidential nature of these discussions highlights just how thorny and high-stakes negotiations with tech giants can be.

The impact on GitLab’s stock has started: Shares initially surged as much as 11.5% before settling for a gain of around 7% in midday trading when news first broke that the company was exploring options, sources said. The fact that the stock responded in this way implies that investors, for one, saw a sale as good news.

Needham analyst Mike Cikos said the acquisition has been anticipated for years. This may seem somewhat counterintuitive to many investors, perhaps thinking of companies like AWS and Google Cloud as much more likely buyers. However, Cikos sees synergies between GitLab and Datadog, showcasing the combination in scale-ups that have caught some by surprise in tech sector consolidations.

Competitive landscape and challenges

Given its position in the market, GitLab still faces significant challenges. The company’s shares have fallen 16% this year as investors worry about potential cuts in customer spending. In contrast, the S&P 500 Application Software index rose nearly 3% over the same period.

GitLab has sharp rivals to contend with, including Microsoft, which, thanks in no small part to its 2018 purchase of GitHub for $7.5 billion. Consequently, this competitive pressure has also presented pricing headwinds for GitLab, as reported in the company’s most recent financial statements.

The San Francisco-based company’s last reported revenue was $169.2 million, up 33% from the same period a year earlier, for its last quarter, and it announced it was cash flow-positive for the first time ever. However, the company also disclosed the pricing headwinds it is facing as competition increases in its industry.

GitLab’s unique ownership structure makes the possibility of a deal even more fascinating. The founder and CEO, Sid Sijbrandij, retains 45.51% of the voting stock via dual-class shares. This further complicates any potential deal because Alphabet — Google’s parent company, which includes a venture capital arm — maintains a 22.2% voting stake in GitLab.

Industry trends and broader context

A sale of GitLab would be part of a broader wave of consolidations in the tech sector. According to Dealogic, in the first half of 2024, the technology sector accounted for the highest share of global M&A activity, involving $327.2 billion worth of deals. This represents a substantial year-on-year increase, with the sector’s deal value jumping by just under 42%.

Such a prevalence of M&A deals is motivated by the necessity for companies to broaden their range of offered services due to the quickly changing landscape of global business with significant players in numerous industries, from artificial intelligence to cloud computing. For instance, the technology conglomerate Alphabet is said to have been in advanced talks to purchase cybersecurity upstart Wiz for an estimated $23 billion. Previously, Alphabet was rumoured to have considered a purchase proposal for the marketing software maker HubSpot.

The tech industry is consolidating, and GitLab’s potential sale would be one of the largest events in software development tools and cloud services this year. Whether this particular deal occurs or not, and what its implications for the technology community at large are, remains to be determined.

(Photo by Pankaj Patel)

See also: GitLab update addresses pipeline execution vulnerability

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Tags: development, google