IBM to acquire Octo to boost its US government business

IBM has announced it is acquiring US-based digital transformation services provider Octo for an undisclosed amount from private equity firm Arlington Capital Partners.  

Octo exclusively serves the US federal government, including its defense, health, and civilian agencies, boosting IBM’s ability to expand its presence in this highly lucrative segment.

The deal, which is expected to close in the fourth quarter of this year, will see Octo’s 1,500 employees join IBM Consulting’s US public and federal market organization, taking its total staff count to 4,200 employees.

The US federal government agencies, according to Big Blue, currently face significant challenges including technology skill shortages leading to delay in responding to demand for citizen services and rebuilding the country’s supply chain network.

The US Federal Government has been investing heavily in IT modernization and cybersecurity, with an estimated budget of $65 billion  for 2023 for civilian IT spending, according to a White House report.

This opens up opportunities for digital transformation service providers such as IBM to help US federal agencies leverage emerging technologies and applications to optimize costs and operational efficiencies while improving security, IBM said.

On Wednesday, the US Department of Defense announced it is awarding a five-year cloud computing contract worth up to $9 billion to IBM, Amazon, Google and Oracle.

Octo, which provides services across artificial intelligence, cloud and infrastructure, DevSecOPs, data management and analytics, and cybersecurity, also runs a 14,000 square foot innovation center called oLabs, which IBM plans to use for co-creation with federal agencies, and rapid prototyping.

The acquisition comes at a time when IBM rivals Google, Amazon Web Services, Microsoft and Oracle are locked in a battle of gaining market share as economic uncertainty slows down enterprise spending.

Big Blue’s acquisition spree

IBM, which has acquired close to 25 companies till date, has been on an acquisition spree since Arvind Krishna took the helm of the company as CEO in 2020. Its consulting business alone has acquired 13 companies to boost its offerings.

In September, the company announced the acquisition of product engineering services firm Dialexa. In February, IBM acquired Neudesic and Sentaca to boost its Azure and 5G consulting capabilities respectively.

In January 2021, IBM acquired Taos to boost its cloud migration offerings, followed by the acquisition of Nordcloud in December 2020 to accelerate its hybrid cloud strategy.

In the consulting line of business, which includes business transformation, technology consulting and application operations, IBM reported a total revenue of $4.7 billion for the quarter ended September 2022, an increase of 14% year-on-year.

While application operations and technology consulting revenue both saw an increase of 17%, business transformation revenue grew by 14%.