If ever there was a need to provide reasons why artificial intelligence (AI) is the hottest thing in fintech right now, S&P Global just gave 550 million of them.
The information giant is paying that amount in cash and stock to pick up Kensho Technologies, a fintech startup backed by names including Goldman Sachs, which is widely regarded as one of the most promising new breed of technology firms.
Kensho, formed in 2013 by Daniel Nadler, a Harvard PhD graduate, and which counts technology specialists from Google, Apple and others among its ranks, specializes in AI for finance and national security. It is either in use or being trialled at most major banks at present.
With this purchase, S&P Global says its aim is to become a world leader in AI development—and it is the first to admit that this isn’t a transaction that has been fueled by traditional concerns in mergers and acquisitions (M&A), such as strong cash flows and diversified product bases. Instead, what S&P is largely acquiring is talent, knowledge, and the ability to infuse its technology stack with natural-language processing, machine learning and other subsets of AI.
“Unless you cover the technology industry, this is not a routine acquisition,” said Doug Peterson, CEO of S&P Global, speaking on a conference call with analysts on March 7. “We’re buying a startup company with proven talent and technology; we’re not buying a business with meaningful revenue or profitability.”
Indeed, Jones continued, Kensho’s revenues of approximately $20 million mean it is something of a light loss-leader at present, although the company is confident that it can get it to break-even.
“The most meaningful benefit is positioning S&P Global at the forefront of AI and machine learning,” he continued.
Nadler, the founder and CEO of Kensho, will stay on with the company, which he described as his “child” on the call. He added that the firm has been working with S&P Global for some time now—it took a stake in Kensho in early 2017—and that his comfort with the deal stems from the firm’s perspective on innovation.
“We’ve had the good fortune of working with the six largest banks in the world, and I’ve had the fortune of meeting with the CEOs and CFOs of all of them,” said Nadler, on the same call. “And so I can therefore say with a real basis for comparison that, perhaps alongside Marty Chavez of Goldman Sachs, Doug and [S&P Global CFO Ewout Steenbergen] are two of the most open-minded, forward-looking executives on Wall Street with respect to technology. That is everything in this game—the tone from the top, the open-mindedness to innovation—that’s what makes the difference between a large, incumbent firm making progress versus muddling along.”
S&P Global’s acquisition is expected to close late in the first quarter of 2018, or early in the second quarter, subject to customary regulatory approvals.
The move is the latest in a year that has already seen tremendous M&A activity in the fintech space. Since January, the sector has seen a series of major multi-million and -billion deals, including Blackstone’s acquisition of Thomson Reuters Financial and Risk, SS&C Technologies picking up DST Systems, and a bid for UK tech vendor Fidessa by Temenos, as well as Ion’s purchase of Openlink.
Bryan Cross, who heads UBS Asset Management's QED group, joins to discuss alternative data and AI.Subscribe to Weekly Wrap emails
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