Often thought of as a pure venture capital play, artificial intelligence, automation and robotics companies are quickly emerging on the private equity radar. In the last few weeks alone ex-EQT team Genui has backed AI software business Acrolinx, French specialist Jolt Capital has closed its third fund and Livingbridge has invested in Symphony Ventures, a robotic process automation company. Henry Alty, who led Livingbridge’s latest deal, charts the growth of intelligent automation and explains where the opportunities lie for private equity firms.
From food producers to investment banks, the robots are on the march – with investors hot on their heels. Workforce automation will have a dramatic effect on the labour market around the world in the years ahead, offering huge opportunities to organisations able to manage the transition to robotics while up-skilling and retraining staff whose jobs will disappear. It’s a vision of the future that has sparked an investment boom.
Already, venture capital investment in automation businesses is doubling year-on-year according to CB Insights. Morningstar reports that robotics-themed investment funds have seen global inflows of $9bn over the past 12 months. Deal activity in the sector hit a new peak last year, with M&A transactions worth more than $19bn.
Livingbridge itself is an active investor. This month we announced a £3.5m investment in Symphony Ventures, a global services firm focused on robotic process automation.
To see why investors are excited, look beyond the tech hype that sometimes dominates: this is a story about the transformation of the workplace. Indeed, for all the focus on the technology, automation is really the next logical step for organisations that have been embracing outsourcing for decades. If outsourcing offered the chance to reduce costs by moving repetitive and less valuable manual processing work to specialist providers, whether onshore or overseas, so automation can deliver further savings by stripping out human intervention altogether.
Moreover, while the fact you don’t have to pay a robot worker may be enticing, cost is only the conversation starter for organisations considering automation. Just as attractive for many will be the quality of work that a robotised labour force can offer, as processes are delivered with complete consistency time after time, guaranteeing accuracy and standardisation.
This will be appealing for all organisations, but especially valuable in regulated industries such as financial services, where compliance requires businesses to follow prescribed procedures and to maintain auditable records of work for inspection and scrutiny.
Moreover, automation tools are evolving rapidly, offering many organisations an opportunity to move up the value chain with robotics applications. In industries such as professional services, for example, where many processes are already relatively codified and regular, accountants have begun using automation tools for the preparation of tax returns, while law firms are using similar technologies for basic legal tasks.
Even in less structured disciplines, automation is now making ground. Leading media organisations, for example, are already using news-writing bots to deliver content online and in print.
No wonder the automation market is expected to grow so rapidly. Estimates vary about scale and speed, but almost no-one disputes the enormous potential of automation technologies to have a massive impact on the future of work over the coming decades. Technology consultant IDC suggests the global robotics market could be worth $135bn by 2019, while McKinsey says half of today’s work activities could be automated by 2055 – and that this threshold could even be reached by 2035.
In practice, a range of factors will affect adoption rates. One crucial question centres on trust – how quickly will people feel confident enough about the technology to depend on it, particularly in safety critical contexts? Regulatory acceptance of automation may also lag the speed with which technology evolves.
Cost will also be an important factor. How rapidly will organisations recoup investments in automation technologies – and how will those costs compare to the cost of the human workforce, whether directly employed or provided by an outsourcer? Making these assessments will not always be straightforward: it will not be simple to calculate the returns generated by freeing up workers to perform higher value tasks, for example.
Nevertheless, these are questions of when rather than if. We are already seeing a number of large and profitable companies making inroads into automation – software businesses with a focus on automation and consultancies that advise on large-scale implementations, for example. The question now is where the next opportunities for investors are to be found.
We believe two areas are especially attractive. First, there is a huge need for implementation specialists with the expertise to help organisations adapt off-the-shelf automation software for their bespoke needs and combine tools to achieve their desired ends. These specialists are also developing their own proprietary intellectual property in the form of tools as they work with their end customers.
Second, higher-value “intelligent automation” software that can help organisations’ decision-making will drive huge value. These businesses will help their clients go beyond the most manual tasks, developing specialist tools in their key verticals to move automation up the value chain. Artificial intelligence technologies have an important role to play here.
The future is exciting – and people aren’t as worried as is often imagined. CapGemini research, for example, suggests just ten per cent of office workers think automation will have a negative impact on their work, with many looking forward to being liberated from tedious and repetitive tasks. Automation can be a growth story for all to share, to the benefit of businesses, investors and the workforce too.