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Seattle Investment Bank

Technology M&A Trends: Spring 2022

Published May 9, 2022

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KEY INSIGHTS: ARTIFICIAL INTELLIGENCE & MACHINE LEARNING

  • 2021 was a banner year for companies with AI-based offerings, both M&A activity and venture capital raised nearly doubled from 2020 and 2022 shows no signs of slowing down.
  • In 2021 venture capital deals grew at a fraction of capital raised as investments continued to concentrate on more mature companies; there were four funding rounds worth $500M or more in 2020 and 15 in 2021.
  • The current AI & ML market is estimated to be $145.8 billion and is forecast to nearly double by 2024, driven by vertical applications.

Revenue Increases Seen from AI Adoption 

In its global survey, The State of AI in 2021, McKinsey asked over 1,800 respondents about their organization’s use of AI; 56% of respondents, up from 50% in 2020, reported that their organizations have already adopted AI and their responses inform the below. Considering the pandemic, the use of AI in the 2021 survey showed an increased ability of AI to lower costs than a year prior and 27% of respondents cited that more than 5% of their organizations’ EBIT is attributable to AI, up from 22%.

Recently, private equity investors have realized the supercharge growth that AI can add to portfolio companies and have come to understand the value of investing in AI — leading to dedicated investing platforms.

View the Report

AI Market Insights

Artificial Intelligence in 2022

  • 2021 was a banner year for companies with AI-based offerings, both M&A activity and venture capital raised nearly doubled from 2020. 
  • In 2021 venture capital deals grew at a fraction of capital raised as investments continued to concentrate on more mature companies; there were four funding rounds worth $500M or more in 2020 and 15 in 2021. 
  • AI is also decreasing in cost and showing improved performance, both of which pave the way for greater commercial adoption of AI.
    • Per Stanford, the cost to train an image classification system has deceased by 63.6% since 2018, while a 94.4% improvement was seen in training times. 
  • The current AI & ML market is estimated to be $145.8 billion and is forecast to nearly double by 2024, driven by vertical applications.
  • Research has shown that AI adopted by companies can have an impact on the bottom line, both by increasing revenue and improving costs.
  • With AI poised for widespread adoption, the next page details areas in which companies currently using AI have seen impacts on the P&L.

AI’s Impact on the P&L

  • In its global survey, The State of AI in 2021, McKinsey asked over 1,800 respondents about their organization’s use of AI; 56% of respondents, up from 50% in 2020, reported that their organizations have already adopted AI and their responses inform the below.
  • Considering the pandemic, the use of AI in the 2021 survey showed an increased ability of AI to lower costs than a year prior and 27% of respondents cited that more than 5% of their organizations’ EBIT is attributable to AI, up from 22%.
  • Within the above functions, the activities that were most likely to drive revenue increases include inventory and parts optimization, pricing and promotion, customer service analytics, and sales and demand forecasting.
  • Within the above functions, the activities that were most likely to produce cost savings include: optimization of talent management, automation of contact-centers, and warehouse automation.

Recent Transaction Spotlights

Description: Microsoft Corp acquired Nuance Communications Inc. (Nasdaq: NUAN), a leader in conversational AI and ambient intelligence.

Rationale: With this acquisition, Microsoft can enable Nuance technology in its offerings,  with an aim of allowing its customers to realize greater productivity and financial performance and of introducing natural language processing to its products.

Description: Siemplify, a leading security orchestration, automation, and response (“SOAR”) company based in Israel, has been acquired by Google. 

Rationale: Google will add Siemplify’s SOAR capabilities into its Google Cloud security offering, strengthening the offering.

Description: Yum! Brands, Inc. the operator of global fast food chains KFC, Pizza Hut, and Taco Bell, has acquired  the Australia-based, creator of an AI-based kitchen software program. 

Rationale: The acquisition looks to support the scaling of Dragontail’s offer throughout Yum! Brands’ portfolio, boosting automation and efficiency of the kitchen flow.

Notable Private Equity Investors Creating AI & ML Platforms

Recently, private equity investors have realized the supercharge growth that AI can add to portfolio companies and have come to understand the value of investing in AI — leading to dedicated investing platforms.

Symphony AI

Description: Investment firm that builds packaged AI solutions to serve the world’s largest industries.

Headquarters: Los Altos, CA

Investments: Five investments since 2019 

Investment Thesis: Building a leading enterprise AI company that provides SaaS solutions for revenue and profit growth, servicing businesses across all key vertical sectors.

Recent Investments

THL

Description: Private equity firm that seeks to invest in middle-market growth companies operating in the financial services, healthcare, technology and business solutions sectors.

Headquarters: Boston, MA

Investments: Six investments since 2019 

Investment Thesis: Raised a $900 million fund focused solely on automation. The team seeks to create step-function change through automation as the driver, and to support management teams in accelerating growth through access to capital and automation experts.

Recent Investments

Battery Ventures

Description: American technology-focused investment firm  that makes venture-capital and private-equity investments in markets across the globe.

Headquarters: Boston, MA

Acquisitions: Three investments since 2018Investment Thesis: Believes ML observability will produce more value to AI investments and is building out an AI powered applications platform.

Recent Investments

Notable Transactions

DateAcquirer/InvestorTargetTarget DescriptionEV ($Ms)EV/ Rev
3-MayLexisNexis Risk SolutionsBehavioSecDeveloper of a behavioral biometric software platformndnd
28-AprSomatusLumiataDeveloper of health analytics platform designed to make predictionsndnd
27-AprBoathouse Capital, Keiretsu Forum, MediaflyExecVisionDeveloper of a conversation intelligence platformndnd
25-AprDatabricksCortex LabsDeveloper of a serverless computing platformndnd
25-AprAdvent International, AssemblyPipeCandyProvider of a market intelligence platformndnd
21-AprRipcordLearningPalDeveloper of an AI-based enterprise platform designed to digitize paper documentsndnd
18-AprGreat Hill Partners, Ten Coves Capital, VersapayDadeSystemsDeveloper of a SaaS-based accounts receivable automation technology platformndnd
11-AprClever RXPredictive Health PartnersDeveloper of a healthcare platform to predict and prevent avoidable healthcare costsndnd
11-AprNuWave SolutionsProModelDeveloper of a simulation-based decision-making platformndnd
6-AprClip AutomationSapphire AutomationDeveloper of automation software for tools, material handling and factory automationndnd
5-AprSilverSkyCybraicsDeveloper of cyber analytics platformnd1.1x
2-AprThomas H. Lee PartnersCarpe DataDeveloper of predictive scoring and data products insurance platform.ndnd
1-AprMasterCardDynamic YieldDeveloper of an AI-powered customer personalization platform$320nd
30-MarTailwindReplier.aiDeveloper of an artificial intelligence customer review platformndnd
21-MarAmerican RoboticsArdennaDeveloper of infrastructure inspection softwarendnd
10-MarParadigm Governance, Principal TechnologiesVision Surgery AIOperator of computer vision and AI technology to aid surgeons.ndnd
22-MarShippitPremonitionDeveloper of artificial intelligence-based logistics platform$21nd
21-MarAkamai TechnologiesLinodeProvide cloud hosting services$900nd
4-MarMicrosoftNuance CommunicationsDeveloper of conversational AI platforms$20,00014.0x
2-MarSnowflakeStreamlitDeveloper of an open-source application framework$800nd
28-FebLinkedInOribiDeveloper of a marketing analytics tool$85nd
18-FebAdvent International, Definitive HealthcareAnalytical WizardsDeveloper of a business analytics platform$65nd
18-FebProteus CambridgeSharktowerDeveloper of an AI-driven project management software$14nd
16-FebMoxi Works, Vector CapitalActivePipeDeveloper of a cloud-based email marketing platform$82nd
16-FebVinco VenturesAdRizerProvider of marketing analytics services$108nd
14-FebCredAvenueSpoctoDeveloper of a SaaS-based debt recovery platform$53nd
13-FebCITIC Capital AcquisitionQuanergy SystemsQuanergy Systems Inc offers a high-performance AI-powered LiDAR platform$1,400nd
9-FebTricentisTestimDeveloper of a testing automation platform$150nd
1-FebMTS AIVisionLabsDeveloper of a visual recognition technology$91nd
20-JanPower & Digital Infrastructure AcquisitionCore ScientificCore Scientific Inc is engaged in Blockchain and AI Infrastructure$190nd
18-JanMayfair Equity PartnersLoopMeDeveloper of a brand advertising mobile platform$120nd
18-JanMarlin Equity PartnersSilobreakerDeveloper of an intelligence platform intended to tackle the proliferation of data.$96nd
5-JanProvidence Equity Partners, Smartly.ioAd-Lib.ioDeveloper of an AI-based business platform$133nd
5-JanAlphabetSiemplifyDeveloper of holistic security operations platform$500nd
23-DecRocket CompaniesTruebillDeveloper of a finance management application$1,200nd
22-DecGlobal SPAC PartnersGorillaDeveloper of cloud-based video-centric and content management applications$169nd
21-DecWorkdayVNDLYDeveloper of a vendor management platform$510nd
1-DecGenesysExceed.aiDeveloper of a conversational marketing platform$35nd
22-NovOutbrainVideo IntelligenceDeveloper of a contextual video platform$55nd
17-NovAlpha Capital Acquisition CompanySemantixDeveloper of a big data and artificial intelligence platform$230nd

Sources: Stanford Human-Centered Artificial Intelligence, 2022 AI Index Report; Pitchbook, 2021 Annual Artificial Intelligence & Machine Learning Report, Q1 2022; McKinsey, The State of AI in 2021, December 2021; McKinsey, The State of AI in 2020, November 2020; Pitchbook; Meridian Research; CapIQ

 

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*Note: Includes transactions completed by Meridian bankers while at previous firms

Meridian Capital’s Technology Team

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Patrick Ringland
President, Managing Director