ServiceNow buys Montreal's Element AI for $500M

This sounds like a pure acqui-hire for the Montreal team. I'm curious how much ServiceNow stocks the employees will get as part of the deal.

One of Montreal's flagship artificial intelligence companies, Element AI, co-founded in 2016 by Yoshua Bengio and in serious financial trouble, was acquired by a California software firm, ServiceNow.

Published on November 30, 2020 at 9:31 am Updated at 12:13 pmShare Karim BenessaiehKARIM BENESSAIEH THE PRESS

It's a tragedy," said Louis Têtu, President and Founder of COVEO and Vice-Chairman of the Board of Directors of the Canadian Council of Innovators, which brings together 133 Canadian companies, some 20 of which are based in Quebec. We have just sold a block of strategic talent and intellectual property in a sector where there are many economic levers. I am outraged. »

The transaction, of an amount that has not been confirmed, but which would be around US$400 million, according to two sources, is expected to be completed "in early 2021", according to a press release issued Monday morning. By 2019, Element AI had succeeded in raising more than $200 million with the support of new investors, including the Caisse de dépôt et placement du Québec (CDPQ) and the Quebec government. According to an estimate by the specialized site TechCrunch, this fundraising effort gave the Montreal-based firm a value of between CDN$800 million and CDN$930 million.

This acquisition, ServiceNow's fourth in 2020, would be the largest ever made by the company, which has a market value of US$103 billion. In an interview with La Presse, ServiceNow's General Manager for the Canadian market, Marc LeCuyer, assured that two of Element AI's co-founders, CEO Jean-François Gagné and researcher Yoshua Bengio, would "stay on board". Montreal operations will continue with Element AI's half a thousand employees.

The Montreal-based company's business model, which will be integrated into ServiceNow, will be completely changed, he said. Our type of acquisition is that we take a company and rebuild it," said LeCuyer. That's what we're doing here, and it will allow us to integrate a large team of data scientists and artificial intelligence experts. »

No warranty For the Minister of Economy and Innovation Pierre Fitzgibbon, it is "disappointing" that Element AI could not remain Quebec-owned, a failure he attributes to the fact that "it failed to deliver its business plan". He recalled that Quebec City came to the company's rescue in 2019 with a $25 million investment, only half of which has been disbursed to date. "In the transaction, this amount will be taken back, there will be no loss for the government," he said.

"Under the circumstances, he said, it is good news that outsiders are valuing the talent that we have been able to stimulate in Quebec. "Element AI will no longer have several clients, but only one who is determined that it will be their development center for artificial intelligence. "While ServiceNow has given assurances that the Montreal operations will be preserved, there is no guarantee of that. "That's their intention, but we can't ask for a guarantee, we're not shareholders. »

As for the CDPQ, spokesperson Maxime Chagnon believes that "the only possible outcome for Element AI was to find a strategic partnership that will allow it to continue its activities. As of December 31, 2019, the Caisse owned between $30 million and $50 million of the company's capital, which would not technically allow it to block a transaction. We are acting in the interests of our depositors," Mr. Chagnon added. We had provided Element AI with intensive support in recent years. ServiceNow is a much broader platform that will strengthen Element AI in its growth, which is good news for this key sector. »

New crossroads of AI The financial setbacks have been known for more than two years. Several media reports had raised doubts about the management of the company, which has half a thousand employees, but would only have revenues of $10 million in 2018, according to the Globe and Mail.

"We were looking at that and we thought, 'Well, there's no company there,'" says Louis Têtu. It's a good example of a fiasco that has been announced for years. Here, it's the worst-case scenario: an entire block of talent moving around, backed by the Université de Montréal, from a company that could have been worth $10 billion. ServiceNow has just bought a team for cheap. »

Since 2019, Element AI has been offering its customers various applications that can be combined, in the manner of Lego blocks, especially in the cyber security, insurance and business analysis sectors. Developed from the 40 or so projects in which Element AI has been involved, notably in South Korea, these applications use deep learning to automate tasks.

Ironically, the co-founder and CEO of Element AI, Jean-François Gagné, has spoken out several times in the public arena to denounce the fact that the arrival of many American companies in Montreal in the artificial intelligence sector, notably Google and Facebook, was leading to the export of local intellectual property.

ServiceNow announced in the press release that the acquisition of Element AI would allow it to establish "a new AI hub in Canada to accelerate the development of customer-focused innovations for the Now platform. The California-based company has had a presence in Canada for about a decade, with its new offices in Montreal complementing its existing offices in Toronto.

Founded in 2004, ServiceNow has made its mark in the "digital transformation" it offers its clients, "including its IT, customer service and human resources management solutions. "We've worked with some of the largest organizations in Canada over the past decade, so this is not a new business for us here, it's a high-priority market," says Marc LeCuyer.