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Shares of cloud automation software company HashiCorp (NASDAQ: HCP) were rallying hard on Tuesday, up 21.7% as of 3:56 p.m. ET.

The software company, which went public in 2021 and helps businesses set up their cloud infrastructure, is apparently nearing a deal to be acquired by tech giant IBM (NYSE: IBM), according to an exclusive report in The Wall Street Journal.

The company had been rumored to be seeking a buyer since March, and it appears Big Blue thinks it may be a good fit for its growing cloud software business.

A nice premium to the current price but far below its IPO

HashiCorp went public at perhaps the most favorable time for technology initial public offerings (IPOs) in history in late 2021, which was the top of the cloud software bubble. The company fetched a whopping $80 per share at its IPO, compared with the $24.55 price the company garnered in the market at yesterday's close -- and this stock performance is despite the company beating analyst estimates fairly regularly.

Chalk up the decline to the stock being far too expensive when it hit the market, along with a severe revenue deceleration over the past year and a half. While HashiCorp was achieving revenue growth in the 50% range through 2022, the company's growth has since decelerated in a big way, down to a mere 14.7% growth rate last quarter.

HCP Revenue (Quarterly YoY Growth) data by YCharts. YoY = year over year.

The lower growth rate and valuation have likely spurred management to seek buyers, even at a valuation far reduced from its IPO. Potential suitor IBM is aggressively pivoting its business away from legacy on-premises software and mainframes and toward hybrid cloud software and AI products. So, the tie-up could be a good fit and end result for both companies.

No deal price disclosed yet

It should be noted that the stock only surged today based on The Journal's report and no firm offer. So, investors buying HashiCorp today should only do so if they believe in the company's future as a stand-alone entity.

Last month, when it was reported that the company was seeking a sale, one analyst estimated a deal price could land in the $32-$40 range, up from the current price near $30 and good for a valuation between 10 to 12 times this year's sales estimates.

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Billy Duberstein has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool recommends International Business Machines. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.