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Robotics, AI and healthcare technology — a perfect storm of capital
- January 1, 2022: Vol. 9, Number 1

Robotics, AI and healthcare technology — a perfect storm of capital

by Jeremie Capron

Past the halfway mark, 2021 is shaping up to be another record year for mergers, acquisitions and venture funding in robotics, AI and healthcare technology. Over the past six months, eight members of the ROBO Global innovation indices received takeover offers, reflecting a growing corporate urge and appetite for advanced technologies.

The combination of digital and physical transformations over the past year has created a perfect storm of capital flowing into robotics, AI and healthcare technology. Supply-chain disruptions, semiconductor and labor shortages, rising commodity prices, and other critical chokepoints in this booming economic recovery amid a global pandemic highlight businesses’ need for automation and digital tech in order to adapt. De-risking these points of failure has become a priority in boardroom discussions, leading to a boom in M&A activity as both offensive and defensive measures to future-proof businesses.

While COVID-19 created chaos in 2020, it also provided a peek into a future where agile organizations thrive, with quick and snappy supply chains for one-day order deliveries and touchless and automated retail experiences. The path toward increasingly frictionless operations appears inevitable. This will require companies large and small to build or acquire robotics, automation and AI capabilities to remain competitive in the eyes of both customers and shareholders.

In 2021, there has been a massive automation deployments across all sectors of the economy. AI has engraved itself into the COVID-19-induced digital transformations in its various forms and is now considered standard operating procedure at most Fortune 500 companies. Barring any significant external shock, the pace of acquisitions across robotics, AI and healthcare is unlikely to slow and competition for quality assets to drive transaction values even higher. These are the early innings of massive disruption in the global healthcare sector, as healthcare continues its path toward digitization. Over the next decade, expect acceleration in investments to improve healthcare efficiencies and productivity, as hospitals and doctors around the world embrace cloud and AI capabilities.

Corporate M&A activity, in general, is breaking records, with a combination of record-high valuations, strong cash flows and low borrowing costs enabling companies to accelerate their plans to digitize and future-proof their portfolios.

According to Refinitiv, the $3.6 trillion total pending and completed deals year-to-date already surpasses last year’s $3.59 trillion. In the United States, looming tax hikes accelerated the pace with nearly $2.4 trillion in M&A deals. Meanwhile, the global stress of COVID-19 has also brought more attention to operational excellence and focus, with carve-out activity expected to follow. While it is not a surprise that the technology sector led the way with $800 billion in transaction value, financial services M&A was also particularly strong, exceeding $442 billion. Another notable trend is that renewable energy has brought in about $18 billion in deals, more than double 2020.

RISING VC INVESTMENTS

Venture capital is reaching new highs, with $156 billion raised globally during the second quarter, the highest in the past decade, with the number of global exits (IPOs, M&As and SPACs) up more than 109 percent year-over-year, reaching an all-time high of 3,000.

Compared to 2020, healthcare and fintech saw the biggest boosts, while robotics M&A slowed down compared with the prior year. Geographically — while most of the world has seen accelerated growth in venture and M&A — China saw a decline of nearly 20 percent in funding amid a regulatory crackdown in certain areas. Cybersecurity saw multiple large public listings with SentinelOne ($8.9 billion) and U.K.-based DarkTrace ($2.3 billion).

Most recently, the second quarter saw some of the most impressive funding with 24 new unicorns (private companies valued over $1 billion) minted in the AI space. This was driven largely by transportation (autonomous vehicles), cybersecurity, healthcare and fintech companies. The United States remained the number one spot for AI investments, followed by China and the United Kingdom.

Exits in AI are ramping up, with NVIDIA and IBM being two of the most active acquirers. We saw the largest AI IPO with UiPath, the global leaders in robotics process automation, at $35 billion, and soon-to-be-public Databrick at $38 billion. In healthcare, AI drug discovery saw multiple billion-dollar exits, including Recursion Pharmaceuticals with a $2.9 billion valuation. Also, in the mRNA space, there was Sanofi’s acquisition of Translate Bio for $3.2 billion as players look to catch up with Moderna.

ARTIFICIAL INTELLIGENCE

Artificial Intelligence in all its forms has seen one of the fastest adoption rates and usage across nearly all industries, even before the pandemic began. The COVID-19 pandemic has accelerated gains and is already changing how we live, work and play. Enterprises around the world are reprioritizing business strategies to quickly analyze and extract intelligent insights to make better business decisions.

Data analytics companies are looking for ways to build infrastructure that will give them a more modern approach to processing data for their customers. The first-generation open-source platforms that disrupted the data warehousing industry are no longer relevant, and enterprises are demanding less time to value for their data initiatives and seeking high-quality insights using AI. Whether through application programming interfaces or self-service markets, the cloud services industry is rapidly changing as enterprises are looking for more off-the-shelf solutions combined with the flexibility of the cloud solutions they are deploying.

Apart from Microsoft, which acquired Nuance, the deals were led by private equity firms, which have plenty of dry powder — $2 trillion in assets are available for private equity investments, according to Deloitte and Bain & Co., which suggests continued momentum in M&A especially for AI-enabled providers and advanced analytics solutions.

Private equity firms and large tech giants are gobbling up enterprise software companies for AI talent as well as for their subscription revenue platforms. AI capabilities are now a crucial component to most of the enterprise IT architecture, and the race to hire AI talent is a big challenge. Cloudera was acquired by two PE firms for $5.3 billion, representing a 24 percent premium for shareholders. Cloudera has had some difficulties in the past digesting a very large acquisition and was faced with requiring more resources to upgrade their infrastructure as the cloud industry is moving quickly. PE firms will provide the resources the company needs to move to a modern data-processing marketplace.

Talend SA was acquired by PE firm Thoma Bravo for $2.4 billion with a 29 percent premium over the previous close. The company began its IPO debut about five years ago and has quickly become a leader in AI data integration, riding the cloud transformation wave. Talend has seen tremendous growth with data analytics and companies requiring rapid shifts to more digital and remote-friendly platforms due to the pandemic. Much like Cloudera, Talend was faced with requiring more financial resources and expertise to drive product-led growth and expand its addressable market opportunity.

Proofpoint was also another takeover candidate by Thoma Bravo, with a 34 percent premium over the closing price at $12.4 billion. Proofpoint is the largest cloud acquisition by a private equity firm.

CHIPMAKERS, AI AND THE CLOUD

While Nvidia awaits approval for its $40 billion acquisition of ARM to round out its portfolio of offerings to be the leader in AI and data centers, it has continued its acquisition spree by buying Palo Alto-based Deepmap (undisclosed value), a developer of high-definition maps for self-
driving vehicles.

Qualcomm announced its intent to acquire Veoneer for $4.6 billion as the company continues to diversify its portfolio beyond smart phone, internet-of-things and automotive technologies.

Meanwhile, Marvell struck a deal to buy cloud and edge networking solutions company Innovium for $1.1 billion. With this acquisition, Marvell may have the broadest portfolio of silicon solutions for hyperscale data centers to help the cloud providers design their next-generation architecture. The industry for hyper-scale data centers is a two-horse race between Broadcom and Marvell.

Aiming to build the banking and commerce platform of the future, Square acquired Afterpay for $29 billion. Square’s acquisition of Afterpay represents one of the largest M&A deals of the year and signals its vision to become one of the biggest digital banks in the world. Square is connecting its banking, payment and seller ecosystems to deliver solutions that put power back in the hands of small businesses. In recent quarters, Square has ramped up its investment in building out its blockchain-based support and applications to provide a full-stack solution for consumers, merchants and developers for crypto assets.

Autodesk’s acquisition of Innovyze, a provider of smart water infrastructure modeling and AI simulation company, for $1 billion, also shouldn’t be overlooked. Given the impact of global warming and ever-increasing flooding catastrophes and the importance of water preservation and control, it’s looking to provide much-needed holistic solutions to design for the future.

HEALTHCARE TECHNOLOGY

Investors can anticipate health-tech M&A activity will increase during 2022 with a shift toward AI, data analytics and other technology solutions that will improve the efficiency of care, can help produce faster and better healthcare outcomes and help reduce physician burnout. Expect continued consolidation of the rapidly verticalizing digital health industry.

In particular, innovation in molecular science, data analytics and enabling technology is really taking off, and companies are racing to lock in their place to capitalize on new and growing markets. The key theme is convergence of digital technology and medical diagnostics for early diagnosis and prevention.

Venture activity in healthcare is at all-time highs, as many of the world’s brightest talent and investors shifted focus to solve some of the hardest problems in healthcare. AI-enabled healthcare companies will inevitably continue to draw higher valuations as innovations bring a rotating charcuterie of timely opportunities.

With COVID-19 disruptions fostering the need for at-home and remote patient care models, both existing companies and new entrants across the healthcare spectrum saw massive fundraising and adoption.

The biggest rounds this year were a $500 million funding round for Ro, a patient-driven telehealth startup, and a $400 million round for Insitro, a machine-learning-based drug discovery company, and $540 million for Noom, which is expanding from a digital-forward pureplay weight-loss program into more acute conditions such as diabetes prevention.

Beyond diabetes, one of the hottest areas includes remote muscular skeletal support (MSK), one of the highest areas of investment, and the root cause of other healthcare issues in the United States, including opioid addiction. Using a combination of wearables, computer vision and analysis, combined with professional coaching, these companies are paving a path toward the future of MSK care.

Another area that is being disrupted with new entrants is the massive, fast-growing $80 billion mental health technology and services market, which includes everything from therapy, measurement and diagnostics, digital therapeutics, wearables, wellness, and alternative medicine. In late August, popular medication and wellness app Headspace announced its intent to merge with Ginger.io, which provides on-demand mental health and therapy support, for a combined value of $3 billion.

 

Jeremie Capron is director of research and managing partner at ROBO Global, the company behind the Robotics & Automation ETF (ROBO), the Artificial Intelligence ETF (THNQ) and the Healthcare Technology & Innovation ETF (HTEC). This article is excerpted from the ROBO Global Follow the Money report. Download a copy of the complete report at this link: https://bit.ly/3ImhJfo

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