PitchBook Report Details M&A Priorities for AI Industry Leaders

It seems that artificial intelligence (AI) is constantly in the news for one breakthrough or another—not to mention predictions from industry observers on what those breakthroughs mean to a particular industry and how they’ll be used. But how are investors and tech giants like FAMGA (Facebook, Apple, Microsoft, Google, and Amazon) companies and others viewing AI and the innovators responsible for advancing its capabilities?

PitchBook’s report titled Tech Giants Pursue Inorganic Growth with AI provides insights. At a high level, the author notes that M&A activity in AI reflects the immaturity of the technology itself. In other words, we’re definitely not seeing its full potential. But despite deal counts and deal values in recent years that have been flat for VC-backed companies, there are suggestions in recent activity that leading users of AI may be ready to start investing more heavily in the technology.

An Industry Gaining Momentum: Highlights of PitchBook’s AI Observations

From Altvia’s perspective, some of the most interesting and important observations from PitchBook’s report include:

  • Tech giants have previously focused on investing in internal R&D initiatives and  smaller tuck-in acquisitions and acqui-hires to fill gaps where needed. PitchBook surmises that this approach has been used to appease shareholders and prevent high losses and antitrust scrutiny.
  • Evidence of the incumbents putting significant resources into R&D includes the fact that they announce new products and research discoveries regularly.
  • Reasons for ramping up artificial intelligence spending include that some tech giants have fallen behind in certain areas that they have neglected. Apple’s AI acquisitions to bring its Siri product back up to par with other voice recognition systems is one example. Intel’s acquisition of Habana Labs to energize its own stalled AI chip design initiatives is another.
  • Deals of $1 billion or more have been limited to semiconductors and autonomous vehicles.
  • Microsoft’s $16 billion 2021 acquisition of Nuance, a company specializing in conversational AI, might be a sign of things to come. Notable is the fact that Nuance’s technology has demonstrated commercial traction in the healthcare industry, so it is more than a tuck-in-focused deal.
  • In another sign that AI-related acquisitions are heating up, human resources automation company Workday has acquired employee sentiment analytics platform Peakon for $700 million.
  • FAMGA companies spent $133.5 billion on R&D in 2020; total VC investment in North America in 2020 was $29.3 billion.
  • To assess the priorities of M&A leaders, PitchBook examined the acquisitions of 110 companies that stand out for their AI R&D. The results are summarized in an interesting bar graph for the years 2017 through 2021. [Link to the report again here?]
  • Horizontal platforms such as core software, natural language technology (NLT), and AI automation platforms along with consumer AI are the leading targets for industry leaders.
  • PitchBook analysts believe that “NLT is a faster-growing niche that carries greater commercial and strategic value to big tech companies in the medium term,” in part because both Microsoft and Alphabet have signaled that NLT is important to their future with new acquisitions and internal initiatives.
  • Public cloud hosting companies are rolling out verticalized AI offerings for industries like financial services, industrial, IT, and healthcare applications. However, they have made few acquisitions to enhance related capabilities. Instead, they’re acquiring horizontal platforms and developing their own applications.
  • The possible ROI of AI acquisitions is still hard to gauge. This is putting downward pressure on valuations for AI startups and causing AI leaders to be hesitant about paying a premium for even the most promising startups, like Element AI.
  • The filling of gaps in the AI architectures of FAMGA companies continues to represent a significant opportunity for startups. 

We  agree with PitchBook’s take that stakeholders can expect tech companies to make additional large acquisitions in categories that they have already clearly prioritized. And given the immaturity of the technology being acquired, it doesn’t appear that regulators will focus on antitrust issues.

Stay Ahead of the Curve With the Right Software

It seems the AI industry is “taxiing for takeoff.” Staying on top of industry developments and in touch with stakeholders requires purpose-built software. Contact us today to learn more about the Altvia platform—a solution that is as powerful as it is easy to implement.

A traditional crm was built for general ‘customer’ scenarios

Software platforms have made the world a better place by making work a better place. Indeed the world is better off when people enjoy their jobs even marginally more, and workplace applications on big CRM platforms like Salesforce.com have done that and much more.

But the potential that platforms like these offer presents diminishing returns: once the platform provider has engineered too many industry specific components into its platform, its usefulness for other industries begins to be threatened, and with that so do the usefulness of the component tools built into the platform.

So it is with the CRM category that Salesforce.com has defined: it is generic enough to work for many industries, and yet still offers the potential for others to round off the edges and nail more vertically-oriented and extremely tailored software solutions.

Private capital markets are actually a great demonstration of this dynamic. Where generic CRM platforms simplify — appropriately so — to assume there’s a business, a customer, a sale, and service of that customer, there are a few industry-specific pieces that are missing.

Take for example, that investors become customers by investing through legal entities the GP raises. It’s a subtle but important nuance that just doesn’t make sense at a platform-as-a-service level (because it’s overly complicated for a simple one-time sale that many industries require), but which can easily be added without 10 years or software engineering. Once provided, the rest of the platform’s components become tremendously powerful again and you’re set to take over the world.

As a traditional CRM in our pillars methodology, these nuances must be present to properly account for investors in these legal entities, potential target companies and which are owned by these entities, the context of all interactions with these parties (as well as the appropriate overlap, ie co-investments), and how you’re arriving at finding these opportunities on both sides of the equation, such that you’re able to piece together what’s effective and what’s not. Not just because we say so, but because these are the very relationships and data that are key to the motivation behind a CRM in any industry.

It’s critical, too, that the valuable publicly-available information that helps to enrich CRM systems and save users painful steps of entering it themselves is fully-integrated at the platform level.

Again, look no further than the 3,000+ pre-built integrations that Salesforce.com — the creator of the CRM platform concept — has at a platform level to do so, and which only exists by way of holding just short of overly-specifying certain industry workflows that would present challenges to properly integrate.

Stakeholder reporting and communication (investor relations) draws on a range of datasets

The traditional “customer service” model of CRM systems once again makes overly-simplified assumptions about the customer relationship when applied to private capital markets.

In fifteen years I personally have yet to hear the terms “warranty” or “service call” in this market because it’s just not the same. But make no mistake, as uncomfortable as it may be to say aloud, customer service is more important now than ever and it’s constantly happening; the industry is, after all, considered to be a financial “service”.

As it turns out, that service is primarily information-based — it’s driven by data and takes the form of reports and analysis that drive decisions, and then end up again in investor-facing reports and analysis.

The foundational elements of a private capital markets CRM must be built such that they accommodate this data (like we discussed above), but so too that it can accommodate additional supporting data that investors (customers!) need in the context of service.

Oftentimes this supporting data — financial metrics and time-based values, for example — is believed not to meet the traditional definition of CRM and the natural thought is “well, better do this in Excel!”.

While I happen to believe Excel is still the greatest software application ever built, its introduction to this value chain we’ve discussed herein actually creates the problem many firms suffer from: key data needed to provide customer service (again: effectively the entirety of a firm’s reports and analysis) is now in disparate systems and detached.

Both of those dynamics are important and distinct: not only is this supplemental data disparate, but when brought together there is no logical association that can be made between the two data sets.

Allow me, then, to make the point very simply: not only can this financial and time-based value data (you may be thinking about is as “portfolio monitoring” or “accounting”) be a part of a CRM, it is arguably the most important part of a CRM because it’s at the core of what providing service to the customer entails — information that comes out of data!

Firms need a digital method to engage stakeholders (ie investor portals)

Investor portals are not new; in fact, for many of us — including myself — they conjure up horrifying nightmares in which we’re aimlessly guessing at folders to find the newest document we need.

So in lies the opportunity: not only have the portals we’ve come to hate not simplified the process of acquiring information, they’ve failed to create an entirely new experience that is “customer service” driven.

To be fair, this is not a B2C market where you’d be long out of business for not having focused on customer service and thus the customer’s technology-driven experience. But don’t expect to be around too much longer if you aren’t thinking about this shift.

Today’s institutional investors increasingly expect this same consumer-like experience, and a massive opportunity is being missed by not providing it. It’s not about providing them the experience they desire; it’s more about the ability to measure engagement that is had in return.

Put simply: what’s keeping the market from providing this experience is the availability of the information that’s required to create the service that provides the experience.

If you’ve hung in this long, you know that by focusing on your CRM, you have the data that’s required to manage the customer relationship and the technology-driven experience through which that information is shared to create a differentiated and opportunistic customer experience.