M&A IBM Buys Digital Agencies In Growth Spurt

Tech giant IBM has bought the German digital agencies Aperto and Ecxio in a bid to expand its traditional business and halt a three-year decline. More acquisitions are expected.
IBM is expanding away from its traditional business.

Ginni Rometty, boss of technology giant IBM, is on a single-minded pursuit of growth. In view of IBM’s three-year business decline, and many restless investors, this strategy seems understandable. The stakes are high and the company is investing plenty of money in a restructuring process.

In the space of a week, IBM has acquired the two German digital agencies Aperto and Ecxio and the U.S. Resource/Ammirati to complement its own in-house agency Interactive Experience or IX, which advises companies on digital transformation.

This is not without a certain irony: IBM, a company with a long tradition, is itself flailing under technological upheavals, and yet it is still keen to help others cope even though their prospects are not bad. Nowadays, digital transformation is a top priority for many company bosses.

IBM’s new subsidiaries specialize in the side effects of digital transformation. The Düsseldorf-based Ecxio is an active player in digital marketing and e-commerce. Clients include the organic food supermarket chain Alnatura, steel traders Klöckner and the paint manufacturer Axalta. The agency has more than 200 employees and generated fees of €13 million ($14.5 million) in 2014, according to the “W&V” advertising magazine.

The acquisitions reflect perceived opportunities in Germany as Europe’s strongest economy. Matthew Candy, European head, IBM IX

IBM’s other acquisition, the Berlin-based agency Aperto, specializes in digital design with all the accompanying technology for websites and apps. It has more than 300 employees and designed the website “Living well in Germany” for the federal government. It also helped Airbus realign its digital corporate communications. Aperto’s other clients include Volkswagen and Siemens. Industry insiders put the company’s fees in 2014 at €22 million.

The new subsidiaries are part of a bigger picture for IBM: “The acquisitions reflect perceived opportunities in Germany as Europe’s strongest economy,” said Matthew Candy, European head of IBM IX, in an interview with Handelsblatt. “For us it’s all about growth and strengthening our portfolio.” In recent years, the digital agency had grown by its own efforts, he noted, and the three recent acquisitions were intended to accelerate this process.

Consulting is already an important business area for IBM. IX, with revenues of $1 billion, is the world’s biggest digital agency, according to the trade magazine “Advertising Age.” IX advises clients on their digital strategy and helps them develop and design websites and apps. More than 10,000 people, including 1,100 designers, in a total of 25 studios are employed by IX.

IBM in Numbers-01

Such clout gives the two newly acquired German agencies even more room to manoeuvre. “Aperto and Ecxio can draw on the resources of our global network and expertise and offer a broad range of services for digital transformation,” said Mr. Candy. These resources include, for example, data analysis, the computer program Watson with its artificial intelligence and the company’s expertise in mobile applications.

However, the attraction for Aperto and Excio lies not only in the technology. Gerald Lanzerits, head of Ecxio, told Handelsblatt: “We were faced with the question: Where can we get the resources to implement big projects?” Therefore, cooperating with a “really big player” was a logical step and should earn the founders a profit. While financial details of the deal have not been made known, the German firms are to remain independent and look after their existing clients. The founders are staying on board.

IBM is becoming a player in a business that is engrossing many managers in Germany. A recent survey by the high-tech association Bitkom found that 55 percent of companies said their business models are changing as a consequence of digitalization. Some 34 percent see problems coping with the upheavals, and 19 percent fear for their very existence. “The issue of digital transformation is becoming increasingly important in nearly every firm,” said Mr. Lanzerits.

Competitors find this strategy understandable. “IBM is doing what other companies have done before them,” said Ruber Iglesias, head of the McCann Worldgroup agency in Germany, which belongs to the U.S. advertising holding company Interpublic. Many acquisitions in such a short time are no surprise for him: “That’s IBM.”

IBM’s shopping spree is no coincidence. While the company’s core business is still profitable, it has been in decline for years. Big Blue continues to offer complete solutions from one source – from PCs, servers, storage systems and software right up to IT services. But demand is falling because more and more firms are turning to cloud computing. This trend has sent IBM’s revenues downwards for 15 quarters in succession.

Against this backdrop, Ms. Rometty’s latest mission comes as no surprise. Since taking over at the helm in 2012, she has set her sights on overhauling IBM. To do so, she has sold parts of companies that no longer matched corporate strategy and has been resolute in cutting jobs.

Up to 3,000 will be lost in Germany alone by 2017. She has identified cloud computing, data analysis, IT security and mobile applications as growth areas. The hopes vested in these four areas are high and in the last business year, they grew by 26 percent to $29 billion, contributing 35 percent to overall revenues of $81.7 billion.

Yet, IBM is not limiting its acquisitions to agencies only and recently completed the takeover of the U.S. Weather Company including its big data business. IBM has also bought expertise and clientele in the cloud business and recently acquired the Ustream platform for video services from the cloud.

 

Christof Kerkmann is an editor for Handelsblatt Online and writes about the technology sector. Catrin Bialek reports on companies and markets. To contact the authors: kerkmann@handelsblatt.com, bialek@handelsblatt.com

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