M&A Alert—May 11, 2017
Cisco acquires conversational AI startup MindMeld for $125 million
Author: Steve Payne & John Ascher-Roberts
Transaction Size: $125mm
On May 11, 2017, Cisco Systems (NasdaqGS: CSCO) announced an agreement to acquire artificial intelligence startup MindMeld for $125 million.
MindMeld develops a platform that helps businesses build smart and human-like conversational interfaces for any application or device. Its platform can create virtual conversational assistants with voice recognition capabilities, including question-answering and language-understanding, to be integrated into applications, websites and devices. In turn, MindMeld’s business customers create products that understand what users say and find the information they need. Use cases including customer services and allowing users to browse through music and video content, check weather, and work with connected home devices. Competitors include Vicarious, DigitalGenius, Kasisto, and Recast.ai, and large players like Google and Amazon have invested heavily for related capabilities.
Tim Tuttle, CEO, founded the San Francisco-based company in 2011. The company received $15.4 million in funding from Bessemer Venture Partners, Fenox Venture Capital, Greylock Partners, GV (Karim Faris), IDG Ventures (Alex Rosen), Intel Capital, KPG Ventures (Vince Vannelli), Liberty Global Ventures, Quest Venture Partners, Samsung Ventures, Telefonica Ventures, and USAA (Gopi Rangan). Mindmeld has roughly 20 employees. The company launched its API last fall and has over 1,200 customers.
Cisco Systems, Inc. (NASDAQ: CSCO) is a networking giant. It designs, manufactures, and sells IP-based networking, along with other communication and information technology products. Cisco delivers its technology and services to its customers as cloud, video, mobility, security, collaboration and analytics solutions. Within its collaboration cloud business unit, Cisco offers enterprise and small business customers their Spark teamwork application, which allows customers to create, meet, message, call, white board, and share through its app and whiteboard products. Spark competes with enterprise collaboration/chat players including Microsoft Teams, Google Hangouts/Chat and Slack.
Based in San Jose, CA, Cisco has a market capitalization of $169 billion and LTM revenues of $49 billion. Rowan Trollope, senior vice president, Cisco IoT and Applications Group, was the internal champion of the deal. MindMeld will form Cisco’s cognitive collaboration team.
Cisco is acquiring MindMeld for $125 million in cash.
Transaction Value: $125M
TV / Invested Capital 8.1x
Comparable transactions include Apple’s acquisition of Turi in August of 2016 for $200 million (7.9x invested capital), Microsoft’s acquisition of Genee in August of 2016 (undisclosed), Salesforce’s acquisition of MetaMind in April of 2016 (undisclosed), Facebook’s acquisition of Wit.ai in January of 2015 (undisclosed), Apple’s acquisition of Cue in October of 2013 for $50 million (10.6x invested capital), Amazon’s acquisition of Evi in April of 2013 for $26 million (5.0x invested capital), and Nuance’s acquisition of VirtuOz in January of 2013 (undisclosed).
The acquisition follows a flurry of M&A activity in the artificial intelligence space. The number of AI acquisitions in 2016 doubled from 2015, according to CB Insights. However, the majority of the virtual assistant acquisitions have been to upgrade consumer-facing products such as Google Home, Amazon Echo and Apple’s upcoming Siri Speaker. Cisco is taking a different approach as it hopes to incorporate MindMeld’s artificial intelligence platform in its collaboration suite to make Cisco Spark’s meeting, messaging and calling capabilities more intuitive for its business customers.
Architect Partners’ Observations
According to a new study from Juniper Research, AI-based chatbots will significantly change the customer service industry. Juniper estimates that chatbots can reduce the cost of resolving customer inquiries by an average of $0.50 to $0.70 per interaction, saving $8 billion in operational costs by 2022.
Cisco, generally praised for its acquisition savvy, has been on a tear as of late. The company made seven acquisitions in 2016 and eleven in 2015. In 2017, most notably, it acquired AppDynamics in January for $3.7 billion shortly before AppDynamic’s planned IPO. This month, it acquired software-defined WAN startup Viptela for $610 million.
We note that Google was an early investor in MindMeld, and presumably was well aware of their technology but did not choose to acquire the company.