IBM acquires Octo to boost its US government business

IBM announced that it will acquire Octo, a US-based digital transformation services provider, from private equity firm Arlington Capital Partners for an undisclosed amount.

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

The deal is expected to close in the fourth quarter of this year, when Octo’s 1,500 employees will join IBM Consulting’s US public and federal markets organization, bringing its total workforce to 4,200.

According to Big Blue, U.S. federal government agencies are currently facing major challenges, including technical skills shortages leading to delays in responding to citizen service needs and rebuilding the nation’s supply chain network.

The U.S. federal government has been investing heavily in IT modernization and cybersecurity, with a projected civilian IT spending budget of $65 billion in 2023, according to a White House report.

This presents an opportunity for digital transformation service providers such as IBM to help U.S. federal agencies leverage emerging technologies and applications to optimize cost and operational efficiency while improving security, IBM said.

On Wednesday, the U.S. Department of Defense announced that it will award five-year cloud computing contracts worth up to $9 billion to IBM, Amazon, Google and Oracle.

Octo offers services across artificial intelligence, cloud and infrastructure, DevSecOPs, data management and analytics, and cybersecurity, and also operates 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 as IBM’s rivals Google, Amazon Web Services, Microsoft and Oracle are locked in a battle for market share as economic uncertainty slows business spending.

Big Blue’s Acquisition Spree

IBM has acquired nearly 25 companies to date, and has been on an acquisition spree since Arvind Krishna took over as the company’s CEO in 2020. Its consulting business alone has acquired 13 companies to enhance its offerings.

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

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

In its consulting business, which includes business transformation, technology consulting and application operations, IBM reported total revenue of $4.7 billion for the quarter ended September 2022, up 14% year-over-year.

While application operations and technology consulting revenues both rose 17 percent, business transformation revenues rose 14 percent.

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