Software and Technology Monthly Newsletter - November 2024
In This Edition:
October 2024 In Review
AI Report Card: Winners & Losers
Public Market Dashboard - October 2024
Mergers and Acquisitions
October 2024 in Review
October 9 The U.S. Department of Justice files court papers aimed at enforcing structural remedies to force the breakup of Alphabet’s business including Google, Chrome, Android and Play.
October 16 Fintech platform Wealthsimple to triple the number of full-time employees in Alberta by the end of 2025, bringing its total full time Alberta workforce to 105 (10% of its overall workforce).
October 22 Legal software provider Dye & Durham (TSX:DND) is exploring a sale after receiving takeover interest from multiple parties.
October 28 The CRTC grants Google a five-year exemption from the Online News Act under the condition it pays $100MM owed to Canadian news outlets within 60 days.
AI Report Card: Winners & Losers
Artificial Intelligence (AI) has been dominating headlines and conversations globally for most of the last 12 months. The broad investment in AI by the tech giants is measured in hundreds of billions of dollars. The topic is everywhere: mainstream media, education, even a surge in the number of blockbuster movies on the topic (Subservience anyone?). The potential of AI continues to be touted for individuals, households and businesses. We took a step back to try and measure (or at least comment on) the current winners and losers from a profitability perspective:
1. Chip Manufacturers
Big Banks Pursuing FinTech Acquisitions
Investment in semi-conductors is soaring! Gartner Inc. predicts global revenue related to AI semiconductors will reach US$71B in 2024, up 33% from 2023. This growth is expected to continue in 2024, reaching $91.9B. AI developers and tech companies are procuring massive volumes of graphics processing units (GPUs) to handle large-scale processing tasks and machine learning capabilities. Energy efficiency is key to reduce power consumption and ultimately, operating costs.
2. Data Centres & Cloud Service Providers
This segment has been active and growing for many years, but the emergence of AI and generative AI has propelled its growth dramatically. Goldman Sachs Research suggests cloud service revenue in 2023 was $496B and they expect it will reach $2T by 2029. As the business opportunities related to generative AI become clearer, investment will continue to grow exponentially. Complex AI models, especially generative AI, require sizable computing power to train and run computations. Data centres and cloud service providers are a cost-effective resource for technology and mainstream businesses to allow scalability and affordable development. The cloud providers also allow for real time analytics globally, which is becoming the expectation currently.
The infrastructure and ancillary service providers are the early winners in the age of AI. The utility of third-party hardware and infrastructure service providers has translated to dramatic increases in revenue and profitability.
However, the question that still remains unanswered: when will the big tech companies turn a profit on their AI products & services?
Losers So Far:
1. Small & medium enterprises (SMEs) in labour intensive industries
Some examples include retail, manufacturing, construction and agriculture. SMEs operating within these sectors face high upfront costs to adopt AI in their respective operations. These businesses are unlikely to have the financial capability to make such hefty investments in the long term and will lose ground to their larger rivals that have access to capital, more diverse analytics and more customer applications to exploit. Most firms will lean to late acceptance once the technology has been more proven but for those that venture too early or too far, the consequences could be a capital expenditure adventure left uncompleted.
2. Big Tech
Yes, the cloud service arms of Alphabet, Microsoft and Amazon are growing healthily driven by AI demand. However, the capital expenditures on AI far exceeds the current profits being generated from the cloud arms. As per Forbes in August 2024, Sequoia Capital recently commented on Big Tech’s massive AI investments, and whether companies will be able to realize large enough returns to justify these expenditures. They refer to it as: “AI’s $600B Question”. The analysis suggests that based on NVIDIA’s annualized US$150B data centre run rate by 2024-Q4, the revenue required for a reasonable margin payback on that capital expenditure would be a staggering US$600B…
As Sequoia rightly shines a light on, it is unclear when the AI investments will translate into profits or cash flow. The response to date has been ambiguous at best, with the Big Tech leaders pointing to “sometime down the road” as their best guess.
Big Tech AI Spending Spree (amounts in USD):
Public Market Dashboard Year-to-Date to September 2024
1. The WST Index consists of 39 publicly traded Canadian software and technology companies tracked by Whitehorn to represent the Canadian software and technology sector.
Mergers and Acquisitions
Oct 1 – Toronto based Nulogy acquires Clayton, MO based Mingo Smart Factory. Acquisition of manufacturing productivity technology provider that provides real-time visibility of machine throughput and efficiency to complement capabilities.
Oct 3 – French company Audensiel acquires Montreal based The Digital Factory, Cybersecurity, DevOps and Data activities of Maltem Canada. Acquisition of the Digital Factory, Cybersecurity, DevOps and Data activities of Maltem Canada to enhance offerings.
Oct 3 – El Segundo, CA based Internet Brands acquires Eagan, MN based FindLaw. Acquisition of integrated online media and software services company specializing in the health and legal sectors from Thomson Reuters (TSX:TRI) to enhance offerings and support services.
Oct 4 – Toronto based Synerion North America acquires Fishers, IN based Qumulex. Acquisition of cloud-based video surveillance and access control solutions provider to strengthen portfolio and to expand offerings in the security market.
Oct 7 – Toronto based BlueCat Networks acquires San Francisco based LiveAction. Acquisition of network observation and intelligence software provider for enterprise customers from Insight Partners.
Oct 7 – Santa Barbara, CA based QAD acquires Toronto based Phenix Software. Acquisition of advanced scheduling software provider for manufacturing, inventory optimization and changeover scheduling to improve productivity and accelerate factory performance.
Oct 9 – Montreal based FX Innovation acquires Montreal based HGC Technologies. Acquisition of Elite ServiceNow partner with customized integrations to enhance ServiceNow capabilities and improve digital workflow automation offerings.
Oct 10 – Waltham, MA based Constant Contact acquires Toronto based Txtify Technologies. Acquisition of tech company specializing in mobile-first lead generation through customized microsites and surveys to enhance SMB offerings.
Oct 11 – Boston based Duck Creek Technologies acquires Toronto based Risk Control Technologies. Acquisition of insurance platform provider to be fully integrated into SaaS suite offering of property and casualty insurance sector.
Oct 11 – Ottawa based Fullscript acquires San Francisco based Rupa Health. Acquisition of laboratory test management streamlining services provider for practitioners to scale comprehensive care platform by integrating the latter's lab ordering, tracking, and educational services.
Oct 11 – Vancouver based Transoft Solutions acquires Australian company AMAG Holdings. Acquisition of video-based analytics software developer to facilitate improved traffic safety and management of road infrastructure.
Oct 11 – Bit Digital (NASDAQ:BTBT) acquires Montreal based Enovum Data Centers. Acquisition of operator and developer of high-performance computing data centres to strengthen position in the digital assets and AI sector.
Oct 14 – Descartes Systems Group (TSX:DSG) acquires Lakewood, NJ based Sellercloud. $130MM acquisition of omnichannel e-commerce solutions provider to enhance e-commerce solutions with advanced inventory and order management capabilities.
Oct 15 – Vancouver based EarthDaily Analytics acquires New York based Descartes Labs. Acquisition of geospatial intelligence company offering commercial products including Marigold, Iris and Ascend to enhance big data and AI in geospatial intelligence and acquisitions.
Oct 15 – Montreal based Syntax Systems acquires South African company Argon Supply Chain Solutions. Acquisition of warehouse management and supply chain optimization solutions provider and SAP Gold Partner serving the U.K. and South Africa to expand capabilities with full implementation lifecycle support.
Oct 15 – Vancouver based JDM Technology Group acquires North York based Degama Systems. Acquisition of ERP software provider to the transportation industry for fleet management purposes.
Oct 17 – Bentonville, AR based Nuqleous acquires Mississauga based SpringBoard Data Management. Acquisition of advanced retail analytics software provider to provide localized and retailer-specific solutions for Canadian retailers and CPG brands.
Oct 17 – Toronto based Round13 Capital acquires Montfort Capital’s (TSXV:MONT) TIMIA Capital business unit. $4.5MM cash acquisition of rights, title and interest in technology lending platform provider that offers debt capital to B2B recurring revenue technology businesses in North America.
Oct 18 – U.K. based eHouse acquires Ottawa based Pointer Creative. Acquisition of Shopify Plus creative and design agency to accelerate digital commerce offerings.
Oct 21 – Montreal based Garda World Security acquires Dallas based Stealth Monitoring. Acquisition of commercial mobile and fixed video monitoring security solutions provider to enhance proprietary technology and product expertise.
Oct 21 – Firan Technology Group (TSX:FTG) acquires Calgary based Flyht Aerospace Solutions (TSXV:FLY). $13.2MM acquisition of actionable intelligence provider to airlines to accelerate satcom solutions and software applications.
Oct 22 – Thomson Reuters (TSX:TRI) acquires Pasadena, CA based Materia. Acquisition of agentic AI developer for tax, audit and accounting purposes to complement Thomson Reuter’s AI roadmap.
Oct 22 – Eden Prairie, MN based Uptime Legal Systems acquires North York based LexCloud.ca. Acquisition of legal cloud and IT service providers to expand into the Canadian market and to strengthen legal technology service offerings.
Oct 24 – Vancouver based Spark Real Estate Software acquires Vancouver based Juniper Homeowner Care. Acquisition of provider of post-construction phase, white-label homeowner care and warranty service platform that manages service requests for property developers and home builders to expand offerings beyond home sales and marketing.
Oct 28 – Vaughan, ON based PSP Services acquires Atlanta, GA based NCR Atleos debit card production and transaction processing business. Acquisition of NCR Atleos debit card production and transaction processing business that services credit unions, financial institutions and payment networks to complement its HLX unified commerce platform.
Oct 30 – Montreal based O2 Commerce acquires Whitefish, MT based ZaneRay. Acquisition of technology solutions and IT infrastructure services provider to strengthen North American market presence.
