artificial intelligence - alantra

ARTIFICIAL INTELLIGENCE

Artificial Intelligence, the emerging global cross- sector growth driver

We are on the edge of an Artificial Intelligence (AI) mega trend that will drive global productivity and corporate profitability across multiple sectors. Companies that effectively embrace AI will be able to increase their competitive advantage and enhance equity value.

$14trn+ GLOBAL PROFITABILITY

INCREASE FROM AI

$19bn SPEND ON AI

IN 2018

68% OF FIRMS USE OR PLAN TO USE AI

1 AI is defined as “The theory and development of computer systems able to perform tasks normally requiring human intelligence”2 MITSloan: Reshaping Business with Artificial Intelligence, 20173 IDC, 2018 4 Accenture: How AI Boosts Industry Profits and Innovation, 2017 5 The chart shows how AI could impact both sector growth between a “Baseline” (excluding AI) and an AI steady state and what share of the profit increase can be attributed to

AI. Workforce heavy sectors such as education, construction, accommodation & food services, and retail would yield the most profit growth from AI driven efficiency gains

Artificial intelligence1 is, often without our general awareness, already an existing part of our everyday lives. However, we are at an inflexion point where AI’s influence will increasingly shape our world due to a number of converging enablers, especially data availability and connectivity, hardware advances, cloud-based and open source software, investment and awareness.

Although only 5% of organisations are extensively incorporating AI into their processes and offerings, some 68% of companies already incorporate AI to a degree or plan to do so, with larger companies being more likely adopters2. Global AI spend is in parallel increasing: $12.3bn in 2017, $19bn in 2018 (+54%) and $52bn (+422%) expected by 20213.

This expected widespread adoption has the potential to increase global profitability by an estimated $14trn, some 38% across 16 industries and 12 economies by 2035, (see Figure 1), with the UK expected to gain the most behind the USA and Finland4.

Pure play AI companies are still relatively few in number and typically earlier stage. M&A trends to date reflect this, with activity largely consisting of increasing venture capital (VC) investment and large technology companies acquiring earlier stage ventures (sometimes at high prices) or developing technologies themselves.

Whilst still relatively nascent in the mid- market, we expect to see a step change in the frequency of AI-driven companies across multiple sectors.

Companies that effectively develop (or adopt) AI capability will enhance their competitive advantage, increase sales and improve margins. Stakeholders should increasingly invest resources in exploring and adopting AI to capitalise on the mega trend that has started in order to enhance value.

PAUL VANSTONE DIRECTOR, TMT

Source: Accenture: How AI Boosts Industry Profits and Innovation, 2017

Figure 1 – Expected economic impact of AI5

3.4%

4.8%

2.1%

4.4%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

Information &Communication

Manufacturing FinancialServices

Wholesale& Retail

Transportation& Storage

ProfessionalServices

Healthcare Construction

Agriculture,Forestry& Fishing

Accomodation& Food Services

Utilities Arts,Entertainment& Recreation

Social Services Public Services Other Services Education

AI S

HARE

OF

PROF

IT IN

CREA

SE

SECT

OR G

ROW

TH R

ATE

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

AI S

HARE

OF

PROF

IT IN

CREA

SE

SECT

OR G

ROW

TH R

ATE

2.4%

4.3%

2.0%

4.0%

2.1%

4.0%

2.3%

3.8%

2.2%

3.4%

2.3%

3.4%

1.3%

3.4%

1.4%

3.2%

1.4%

3.1%

1.9%

3.1%

1.6%

2.8%

0.9%

2.3%

0.7%

1.7%

0.9%

1.6%

Baseline (ex AI growth rate)

AI Share-of-profit increase between baseline and AI steady state

AI steady state growth rate

3.4%

4.8%

2.1%

4.4%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%



Wholesale& Retail








AI S

HARE

OF

PROF

IT IN

CREA

SE

SECT

OR G

ROW

TH R

ATE

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

AI S

HARE

OF

PROF

IT IN

CREA

SE

SECT

OR G

ROW

TH R

ATE

2.4%

4.3%

2.0%

4.0%

2.1%

4.0%

2.3%

3.8%

2.2%

3.4%

2.3%

3.4%

1.3%

3.4%

1.4%

3.2%

1.4%

3.1%

1.9%

3.1%

1.6%

2.8%

0.9%

2.3%

0.7%

1.7%

0.9%

1.6%




3.4%

4.8%

2.1%

4.4%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%



Wholesale& Retail








AI S

HARE

OF

PROF

IT IN

CREA

SE

SECT

OR G

ROW

TH R

ATE

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

AI S

HARE

OF

PROF

IT IN

CREA

SE

SECT

OR G

ROW

TH R

ATE

2.4%

4.3%

2.0%

4.0%

2.1%

4.0%

2.3%

3.8%

2.2%

3.4%

2.3%

3.4%

1.3%

3.4%

1.4%

3.2%

1.4%

3.1%

1.9%

3.1%

1.6%

2.8%

0.9%

2.3%

0.7%

1.7%

0.9%

1.6%




AI is already here and around us, with notable consumer-facing examples including Google search, Apple’s Siri, Amazon’s Alexa, phone voice automation and online customer service chat bots.

However, as with many emerging and potentially disruptive technologies and practices, adoption conflicts exist (see Figure 2). Obtaining a competitive advantage, targeting new business, and keeping up with competitors

(existing and new) are primary AI drivers versus skills shortages, lack of defined AI strategy and identifying the case for AI the top three challenges. Workforce impact is also a consideration (on both sides). Nevertheless, AI is beginning to have a significant impact on certain business sectors; early adopters are, unsurprisingly, those that are already heavy embracers of technology (see Figure 3 opposite).

AI, the here and now

Source: MITSloan: Reshaping Business with Artificial Intelligence, 2017 (Q: Percentage of respondents who somewhat or strongly agree with each statement) and Gartner: Survey Analysis: Enterprises Dipping Toes Into AI but Are Hindered by Skills Gap (Q: Top 3 challenges to adopting AI by organisation), 2017

Figure 2. AI adoption, competing tensions

ADO

PTIO

N D

RIVE

RS

ADO

PTIO

N C

HAL

LEN

GES

Obtain or sustain competitive advantage Lack of necessary skills

Allow us to go after new business Defining our AI strategy

New competitors using AI will enter our markets Identifying use cases for AI

Existing competitors will use AI Funding for AI initiatives

Reduce costs Security or privacy concerns

Suppliers will offer AI driven products and services AI integration complexity

Customers will ask for AI driven offering

Determining how to measure value from AI

AI ADOPTION

84%

75%

75%

69%

63%

61%

59%

54%

37%

35%

35%

30%

27%

23%

High tech and telecommunications

Automotive and assembly

Financial services

Resources and utilities

Media and entertainment

Consumer packaged goods

Transportation and logistics

Retail

Education

Professional services

Healthcare

Building materials and construction

Travel and tourism

Source: McKinsey & Company: AI Discussion paper, 2017

ASSETS USAGE LABOUR

Over

all A

I Ind

ex

MGI

Dig

itisa

tion

Inde

x

Dept

h of

AI t

echn

olog

ies

AI sp

end

Supp

ortin

g di

gita

l ass

ets

Prod

uct d

evel

opm

ent

Oper

atio

ns

Supp

ly c

hain

and

dis

tribu

tion

Cust

omer

exp

erie

nce

Fina

ncia

l and

gen

eral

man

agem

ent

Wor

kfor

ce m

anag

emen

t

Expo

sure

to A

I in

wor

kfor

ce

AI re

sour

ces p

er w

orke

r

AI INDE X

Relatively low Relatively high

MGI DIGITIL ISATION INDE X

Relatively low Relatively high

Figure 3. Sector adoption of AI

Optimising audience targeting across the B2B and B2C spaces through content and time relevant material delivered across increasingly advanced platforms

• Sales targeting• Customer support personalisation• Marketing automation• Digitally targeted consumer advertising -

geolocation, programmatic, and, in particular, hyper-targeted and real-time adverts delivered across increasingly advanced platforms (handheld and in-home smart devices, digital advertising platforms)

SALES, MARKETING AND ADVERTISING

How selected sectors can use AIAI applications are typically B2B (90%) and vertically (91%)1 focused

Deliver an immersive experience to the consumer whilst streamlining the in-store environment to deliver sales increases and margin enhancement in this rapidly changing sector

• “Conversational commerce” and personal assistants• Personalise promotions and tailor websites in real time• Consumer chatbots and automated customer services

with voice recognition• Demand trend planning and price optimisation• Store planning and automated checkout• Enhanced delivery options

RETAIL AND CONSUMER

Advanced manufacturing reliance on machinery and the increased prevalence of the internet of things (IoT) primes the space for AI adoption

• Improve product design• Manufacturing yield enhancement• Efficient component stocking• Automated production lines and robotics• Supply chain management • Predictive maintenance• Refine production planning to match sales• Energy management

MANUFACTURING AND INDUSTRIAL

1 Beauhurst, Crunchbase, Tracxn, MMC Ventures

Increasingly complex logistics and potentially game-changing autonomous vehicles in the near to mid-term create a significant opportunity for disruption

• Warehouse optimisation and adaptability• Stocking, sorting, picking and packing• Demand planning• Shortened supply chain• Fleet management• Autonomous vehicles (in-building and on-road)• Infrastructure optimisation

TR ANSPORTATION AND LOGISTICS

AI particularly benefits services where there are a large number of data points, repetitive tasks or multiple decisions required

• Data analytics• Process automation• Security – cyber and physical • Legal and compliance • Financial services e.g. customer interaction,

financial advice and loan approval, insurance, back office functions

• IT management

BUSINESS APPLICATIONSAND SERVICES

Significant healthcare cost savings to society, particularly in ageing developed economies

• Speed up and reduce cost of clinical trials • Increase accuracy and reduce cost of

diagnosis and monitoring• Autonomous testing• Improved health insurance• Organ design and printing• Virtual teaching and marking

HEALTHCARE AND EDUCATION

AI global transaction volumes have increased significantly with VC investments rising from 310 in 2013 to 1,349 by 2017 and M&A, which naturally lags behind, rising from 22 to 115 deals over the same period (see Figure 4). China accounted for some 48% of start-up funding with the US accounting for 38% and RoW 13% in 20171. The UK VC market is still relatively nascent (estimated at c.400 companies), with 66% of fund raisings being either Angel or Seed rounds2.

The large big data technology companies are, unsurprisingly, the serial acquirers and investors in the space (see Figure 5) with the likes of Fujitsu and Siemens also holding a significant number of AI patents.

Prominent deals include Cisco’s acquisition of MindMeld (conversation interface, $125m); Genpact’s acquisition of Rage Frameworks (financial services data analytics, $125m); Intel’s acquisition of Nervana Systems (deep learning software, $400m); ARM’S acquisition of Apical (imaging machine learning, $350m); IBM Watson Health’s acquisition of Truven (healthcare data analytics, $2.6bn), Merge Healthcare (medical imaging processing, $904m) and Phytel (healthcare management, $232m); the sale of Caspida to Splunk (cyber security, $190m); the acquisition of RelateIQ by Salesforce (CRM, $352m); and, of course, Google’s acquisition of DeepMind (broad AI development, $600m).

Driverless cars have also been a notable AI investment theme with Ford, Volvo, BMW, Tesla, UBER, Google and others all developing their own applications.

M&A and investment

Figure 4. Global AI equity funding and M&A

Source: CB Insights, Alantra 1 CBI Insights: Top AI Trends to Watch in 20182 Beauhurst, Crunchbase, Tracxn, MMC Ventures

M&A deal number

Disclosed VC funding ($M)

VC deal number

22 39 4580

115

310

482

635

888

1,349

0

200

400

600

800

1,000

1,200

1,400

1,600

$-

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$18,000

2013 2014 2015 2016 2017

Figure 5. Big tech company AI M&A and investment

Source: CB Insights, Alantra

COMPANY INVESTMENTS 2012 – 2017 Y TD ACQUISITIONS 2012 – 2017 SELEC T INTERNAL PROJEC TS

A9Amazon Lex (powers Alexa)Apache MXNetAmazin PollyAmazon RekognitionAmazon Go

SiriCore MLNeural EngineProject Titan

The Network Intuitive

MBig BasicCaffe2DeepMask/SharpMask

Predix.io

Google HomeDeepMindGoogle BrainTensorFlow, TPUQuantum AIWaymo

WatsonTrueNorthPowerAI

LoihiIntel Nervana (powers next generation Intel chips like Knights Mill)

CortanaAzure ML platformCognitive ToolkitProject BrainwaveMicrosoft Pix2nd generation Holographic Processing Unit

Adaptive Intelligent AppsOracle Autonomous Database Cloud

Technology, Media & TelecomsThe Alantra Technology, Media & Telecoms team combines deep sector expertise with access to strategic global buyers and investors.

Examples of our Technology, Media & Telecoms deals

COMPANY SALES

PRIVATE EQUITY TRANSACTIONS

ACQUISITIONS DEBT CAPITAL ADVICE

ALANTRA Alantra is a global investment banking and asset management firm focusing on the mid-market with offices across Europe, the US, Asia and Latin America.

FULL ADVISORY SERVICEAlantra advises business owners, management teams and financial investors on:

• M&A transactions

• Private equity

• Equity capital markets

• Debt capital markets

GLOBAL REACHOur team of 300 corporate finance professionals are present in over 20 countries:

• Advised on over 700 deals worth more than €100bn

• Over 50% of our deals are cross-border

• Quoted partnership with over 100 partners leading deals

SECTOR EXPERTISEDeep coverage of chosen niches:

• Over 250 businesses sold to strategic trade acquirers

• Cross-border relationships with strategic acquirers and capital providers

CONTACT USIf you would like to discuss this report in more detail or to learn about Alantra’s advisory services, please contact us:

Paul Vanstone [email protected]

Richard Sanders [email protected]

Jamie Hope [email protected]

+44 (0) 20 7246 0500

ACQUIRED BY

SALE TO SALE TO SALE TO

GROWTH CAPITALINVESTMENT BY

ACQUISITION OF

INVESTMENT FUNDING

ACQUISITION FINANCE

MBO

DEBT-FUNDED MBO

SALE TO SALE TO

Alantra Corporate Finance LLP is a limited liability partnership registered in England & Wales (registered number OC306421). Registered Office: Bank House, 8 Cherry Street, Birmingham, B2 5AL.Alantra Corporate Finance LLP is authorised and regulated by the Financial Conduct Authority (number 478406)© Alantra Corporate Finance LLP 2018 alantra.com

Austria & CEEBelgiumChinaFranceGermany

Greece India Ireland ItalyLatin America

Mexico Netherlands NordicsPortugal Spain

Switzerland Turkey United KingdomUnited States

THE GLOBAL MID-MARKET SPECIALIST

artificial intelligence - alantra

Documents