Macro challenges remain, but AI & datatech fundraising and M&A opps persist
The AI & datatech sector is proving profitable for VCs and corporate investors, as well as for strategic buyers making acquisitions to invest further in their product and commercial capabilities, says tech-focused investment bank ICON Corporate Finance.
According to ICON’s AI & DataTech Atlas, the first three quarters of 2022 saw datatech fundraising valuations set new records, whilst premium M&A deals are still closing, despite chaos and complexity in the market.
Financing and M&A opportunities persist in the sector, says the report, which supports financial and strategic investors, acquirers, and startups in understanding datatech opportunities at the macro and micro levels.
The hyperdetailed Atlas pulls from ICON’s datatech transaction experience as well as financing and acquisition trends aggregated from the London, Bristol and San Francisco-based firm’s proprietary dataset, covering 2,300+ companies.
Key insights:
- Chaos and complexity continues: more than 1,000 datatech companies that are still independently operating today were founded since 2010. Nearly half-trillion dollars of unrealized value remains in venture backed AI & datatech startups
- Though VC is harder to come by this year, companies that continue to raise have eked out a new median pre-$ valuation record in the first 3/4 of 2022. Less companies are raising capital, but their valuation demands are still being met
- 75% of the $425 billion aggregated value of all datatech companies is held by just 10% of the companies in ICON’s dataset. Less expensive datatech investment opportunities exist, but quality deals are difficult to pick out from the crowd
- Premium-valued acquisitions are still getting done. 12 AI & dtatech acquisitions over the last 18 months cost $3 billion, but generated less than $100m of revenue
- Confidence in the Data Cloud: despite losing more than 40% of its equity value so far in 2022, Snowflake this year announced its two most meaningful acquisitions to date, spending nearly $1bn. This signals continued confidence in the growth trajectory of AI & datatech and that financings and acquisitions will prevail past current instability
- On a deal volume basis, traditional West Coast tech incumbent acquirers have been replaced by emerging upstarts, buyout firms and reinvigorated European acquirers. The new target pool enables creativity in competitive deal marketing
Overall, ICON’s AI & DataTech Atlas evidences how financing and acquisition opportunities continue to exist despite market turbulence.
Report author Ben Kolada, head of AI & datatech investment banking at ICON Corporate Finance, explains: “Large, transformative deals will continue but financing and acquisition deal volume will increasingly favour innovative emerging companies, even if they haven’t yet demonstrated significant commercial success.
“As large acquirers continue holding onto their cash, they will acquire nimble smaller companies that offer capabilities in emerging growth markets. These smaller, sub $250m acquisitions will be preferable for their lower capital outlay but higher likelihood of return on investment.”
Ben Kolada added: “We’ve been bullish on fundraising and M&A opportunities in the AI & datatech market for some time now. In fact, some of our best transactions have come from this sector. However, for the first time in more than a decade we are facing potentially large economic contraction. The rising tide of the last ten years lifted all boats, but financial and strategic acquirers, investors, and the startups themselves are now hunting for a diminishing number of investment and acquisition opportunities.
“This is precisely why we publish the AI & DataTech Atlas. Firstly to inform our own decisions in how we advise clients, but also to inform the overall datatech sector on where increasingly scarce opportunities exist.”
To read the full report, click here.
