Media365
The capital market is likely to be a battleground between traditional businesses and artificial intelligence start-ups, as tech investors expect both to survive AI-driven disruption through mergers and acquisitions (M&As).
The outlook follows the launch of new agentic products by start-ups like Anthropic, which pushed investors to view AI as a potential replacement for the business models of established industry leaders, triggering an “AI scare trade” in January in listed software, wealth management, property and insurance firms. A report from Citrini Research in late February extended those fears to the coding and digital payment sectors.
The disruptions, however, are expected to spur deal making to accelerate automation, especially in the software-as-a-service (SaaS) industry. The sector logged US$1.2 trillion of M&A deals in 2021, accounting for more than 82 per cent of total tech transactions, before dropping to US$788 billion for a 69 per cent share last year, data from Dealogic showed.
“The software giants will definitely proactively seek M&As,” said Henry Zhang, president and managing director of Hermitage Capital, a private-equity firm managing US$1.5 billion worth of assets. “Self-iterating niche agents will revolutionise the traditional software industries.”
But the reverse is also possible. SaaS companies that failed to incorporate AI fast enough were now prime acquisition targets for AI start-ups looking to buy existing user bases, said Dermot McGrath, CEO of Shanghai-based venture capital firm ZenGen Labs, pointing out that it was a do-or-die moment for the legacy firms.
