Canadian AI startup Cohere has agreed to acquire Germany’s Aleph Alpha in a transatlantic deal aimed at giving governments and regulated industries an alternative to US tech giants.
The combined business will be concentrated in Germany and Canada, bringing together engineering talent and accounting resources in the two G7 countries. It will focus on clients in the government, financial, defense, energy, manufacturing, telecommunications and healthcare sectors.
As part of the deal, Germany’s Schwarz Group, the retail giant behind Lidl and Kaufland, is leading a structured financing commitment of 500 million euros in the next round of Cohere Series E. Schwarz’s private cloud service Stackit will serve as the technological backbone of the business.
The market opportunity is huge. McKinsey projects AI services will exceed $1trn a year, while standalone AI needs to account for around $600bn of that figure.
“Organizations around the world want consistent control over their AI stack,” said Aidan Gomez, founder and CEO of Cohere. He said the partnership would give businesses and governments “full assurance that their data remains theirs”.
Ilhan Scheer, CEO of Aleph Alpha, said that the combined company will give European institutions “access to powerful, but controllable AI that they can own”, and act as a “real counterweight” for organizations that refuse to hand over control of AI to a single provider or location.
The transatlantic challenge
Forrester vice president and chief analyst Thomas Husson said the deal creates “a unique transatlantic player designed to challenge the dominance of the American giants”.
“Although it’s a technology acquired by a Canadian company, the real potential is likely to be shared,” said Husson. “Cohere will provide advanced engineering and global product and commercial leadership, while the German players (especially the Schwarz Group) provide significant financial and political support.”
He described the structure as “hybrid and unusual” and said it aimed to “capture the dominant AI market to provide a secure alternative for governments of highly regulated industries to avoid relying on US cloud regulations”.
Husson said the arrest would put pressure on French AI company Mistral in particular. “This will challenge Mistral AI which will now face a new competitor combining North American power with European regulatory trust,” he said.
However, Husson cautioned that success is not guaranteed. “Ultimately, the success of the agreement depends on whether this two-headed leadership can remain united while competing with the big budgets of giants like Microsoft, Google or OpenAI.”
The transaction is subject to approval by Aleph Alpha’s shareholders and competition regulators.
In August last year, Cohere raised $500 million at a $6.8bn valuation and hired former Meta vice president of AI research Joelle Pineau as its first AI chief. Pineau, a Canadian computer scientist and professor at McGill University, led Meta’s Fundamental AI Research team.
Cohere’s oversubscription raise was led by Radical Ventures and Inovia Capital, with additional participation from existing investors including AMD Ventures, Nvidia and Salesforce Ventures.
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