Open-source enterprise software giant SUSE Group today announced that it’s buying Kubernetes startup Rancher Labs Inc. in a move that could advance the company’s goal of doubling its revenue by 2023. 

Sources told CNBC that the deal is worth between $600 million and $700 million.

Germany-based SUSE, which is owned by private equity firm EQT Partners, makes one of the industry’s most widely used enterprise distributions of Linux. The company’s Linux distribution runs in enterprise public cloud deployments, in private data centers and on edge systems. The company also offers other products higher up the stack such as container management tooling.

Cupertino, California-based Rancher Labs provides a software platform that makes it easier to set up and manage large Kubernetes environments. It makes money through support contracts and professional services. Rancher says its software is used by more than 30,000 engineering teams worldwide to power their Kubernetes-powered container deployments, which enable applications to run unchanged in multiple computer setups, while paying customers include big brands such as American Express.

The deal will combine two major players in the open-source cloud tooling ecosystem. SUSE has offered an open-source edition of its Linux distribution for more than a decade, while Rancher provides all of its products under a free license.

The acquisition of Rancher could bring the company closer to meeting its aggressive revenue target for 2023. In an exclusive interview (below) on SiliconANGLE Media’s theCUBE in May, SUSE Chief Executive Officer Melissa Di Donato revealed the company is aiming to double its sales. “We’re going to go from just under a half a billion to a billion in revenue in three years’ time,” Di Donato said.

Judging by the reported $600 million to $700 million SUSE is paying for Rancher Labs, the company sees a lot of revenue upside in the startup. Rancher Labs disclosed this year that it had doubled its customer count in 2019 and increased sales by 169%.

SUSE will make the startup’s products available via its worldwide partner network to open up more revenue opportunities globally. In addition, the German company’s significant engineering resources could enable Rancher Labs’ Kubernetes platform to be developed at a faster rate than before. 

“By combining Rancher and SUSE, we not only gain massive engineering resources to further strengthen our market-leading product, we are also able to preserve our unique 100% open-source business model,” Rancher Labs CEO Sheng Liang wrote in a blog post today. “This acquisition is a launch point for further growth of Rancher.”

The acquisition could mean more competition for IBM Corp.’s Red Hat in the Kubernetes market. Red Hat is one of SUSE’s top rivals in the enterprise Linux segment and has its own Kubernetes management platform, OpenShift, that directly competes with Rancher Labs’ platform.

SUSE expects to close the acquisition by October. Liang will lead the combined engineering organization inside the German company after the deal becomes official.

Rancher Labs has raised $95 million in funding from investors that included Mayfield, Nexus Venture Partners and others.

Liang spoke today about the acquisition with Stu Miniman, host of theCUBE, SiliconANGLE Media’s video studio:

Image: SUSE