When it comes to making rapid advances in AI technologies, buying up small, specialist tech companies is an increasingly attractive proposition.
AI is on everyone’s lips at the moment and those who succeed in utilising it to develop new products and platforms can find themselves in a market leading position. So, it is not surprising that large technology and consulting companies are looking to acquire smaller companies that are leading promising AI developments.
Smaller development companies often have a significant advantage over their larger counterparts when it comes to developing AI. With no set view on how the world works, the need to continually innovate and experiment to succeed provides a competitive advantage that larger companies often find hard to replicate.
Larger companies need to acquire skills in AI. The potential to leverage acquired technology across their existing clients and markets offers huge rewards.
This makes the acquisition of start-ups and specialist AI developers an imperative for larger companies to maintain their market position.
Globally, over the last three years there have been 232 acquisitions of companies with an AI aspect to their business. Although there were a number of significant transactions valued at more than US$1 billion, the majority of these transactions, some 90%, were for less than US$100 million.
The most active acquirers were large technology and consulting companies – Microsoft and Accenture in particular were noticeably active.
Staggeringly, those companies that were listed prior to acquisition were acquired at a 125% premium reflecting the high demand for, and therefore value placed on, promising AI developments.
Making AI accessible
Microsoft has made three acquisitions of AI companies in the last year. Firstly, it bought Semantic Machines, a conversation engine that allows modelling of text and speech.
Then Bonsai AI, which provides AI for enterprises offering interactive spoken interfaces for cars and educational games for tablets. The aim of this acquisition is to reduce barriers to AI development.
That aim was further enhanced with the acquisition of Lobe Artificial Intelligence, which has developed a platform that allows non-engineers and experts to develop and apply AI models without writing code, enabling non-experts to develop AI.
Kevin Scott, Microsoft’s executive vice president and chief technology officer, noted that AI development is a slow and complex process, its full potential is only beginning to be explored and many people are at a disadvantage when it comes to accessing AI. Therefore, Microsoft’s acquisitions aim to give access to AI development to more people.
Larger companies buying talent is nothing new. But those companies that are able to develop a niche in AI and, in particular, create a platform that can be leveraged by larger companies will continue to find themselves in demand and attract a premium valuation in the market.
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Date: July 2019