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Tune in for a dialogue to study extra about the important thing M&A developments throughout robotics, AI and healthcare tech in 2021 thus far. For a deeper dive into probably the most attention-grabbing M&A exercise in 2021, obtain our M&A Report under.
Webinar Transcript:
Jeremie Capron:
My title is Jeremie Capron. I am the Director of Analysis right here at ROBO International, I am speaking to you from New York. And with me on the decision as we speak are my colleagues from the analysis group, Lisa Chai, Nina Deka, and Zeno Mercer. And as we speak we’ll discuss robotics, automation, AI, healthcare applied sciences, with a concentrate on deal exercise, which has considerably elevated within the final 18 months. So we’ll be taking a look at each the general public fairness facet and the non-public facet, enterprise capital.
We will be discussing a number of the key developments and we’ll be certain to avoid wasting time in your questions. A few of you recognize we recurrently share a few of our analysis on the roboglobal.com web site and our in biweekly emails. And we simply printed a brand new report overlaying as we speak’s presentation in higher element. So be happy to obtain this report, join our e-newsletter, roboglobal.com.
So let me begin with a fast reminder what we do right here. We’re a analysis and funding advisory firm that is centered on robotics, AI, healthcare applied sciences. Eight years in the past, we put collectively a group of funding professionals and business specialists with the purpose of designing thematic, funding methods round what we consider to be a technological revolution. Robotics, AI are a set of normal goal applied sciences that may be utilized to each business. We give it some thought just like the web or electrical energy, and that is providing great funding alternatives.
As we speak there’s over 4 and a half billion {dollars} in funds monitoring our methods, they’re primarily in ETFs. Probably the most notable might be ROBO, R-O-B-O, that was the primary robotics and automation index portfolio that launched in 2013, and now in its eighth yr. And our analysis round automation led to comprehend that one thing essential is occurring in two areas that adjoining to robotics automation.
And so in the previous couple of years we launched two further index portfolios. The primary one is T-H-N-Q, or THNQ, that’s the synthetic intelligence index. And the second is every H-T-E-C, or HTEC, that’s the healthcare expertise and innovation index. These are usually not your conventional ETFs or methods mixed, a research-driven strategy, with the advantages of index investing and the ETF wrapper. What you discover in these portfolios is such greatest at school firms from all over the world, small, mid, massive caps, which are roughly equal weighted and rebalanced each quarter. So they’re diversified but they’ve a really excessive lively share relative to uncooked fairness indices just like the S&P 500.
And the three methods have outperformed international equities since inception, as you may see on this desk that reveals index returns as of the tip of final month, August, 2021. You possibly can see the returns has been fairly passable. They have been pushed by structural and technological drivers of adoption for these applied sciences, and the robust monetary efficiency of the businesses which are main this revolution. So, M&A has been a reasonably robust tailwind to the ROBO return since we first designed the portfolio in 2013. And that is within the context of little greater than 80 firms in that in our portfolios, we see 25 takeover makes an attempt since we began eight years in the past, and we’ll get again to that. However actually the essential level right here is that we have seen a transparent acceleration previously 18 months and that’s regardless of the numerous enterprise disruptions through the pandemic.
In reality, it is pretty stated that robotics, AI, healthcare applied sciences are seeing an ideal storm of capital now. We at the moment are virtually three quarters into 2021, and we’re taking a look at one other document yr by way of mergers, acquisitions, enterprise funding. We’ve a document variety of delivery of unicorns, now we have large IPO’s. We predict the pandemic has turbocharged digitization of our economic system, and has left some main scars as we come out the opposite facet. You concentrate on the provision chain disruption, rising commodity costs, rising transportation prices. We’ve shortages, semiconductor shortages. We’ve labor shortages. And that is actually led to a race to automate and digitize, and that is turn into a high strategic precedence for the businesses all over the world. And particularly these bigger, slower shifting organizations, they perceive that they should have a presence and capabilities round automation. And in lots of circumstances, they’re behind the curve and they should purchase moderately than construct these capabilities and that they are able to pay up for high quality companies.
On this subsequent slide, I need to spotlight that the expertise and market leaders in AI, in robotics, in healthcare tech, the businesses in our three portfolios they are usually prime quality companies by way of their margins, their return on capital, the power of their steadiness sheet. And this chart right here, it reveals the proportion of firms with a internet money place for ROBO, HTEC and THNQ, and a few uncooked fairness indices. And so 70% of the businesses within the synthetic intelligence index, the THNQ index, have extra cash than debt, that is a measure of steadiness sheet power. That’s much more than what you will discover within the NASDAQ or the S&P 500.
I additionally need to level out that the businesses we’re speaking about right here, they don’t seem to be simply US firms. You possibly can see now we have greater than 13 international locations had been introduced. And plenty of these firms are small and mid-caps between 40 and 50% of the ROBO and HTEC portfolios. The overwhelming majority of them, they don’t seem to be represented within the S&P 500 or within the international fairness indices. And so most buyers have very restricted publicity to robotics, AI and healthcare tech.
So, let us take a look at what’s occurring in robotics automation first, then I am going to cross it on to my colleagues to debate the healthcare tech and AI, after which we’ll wrap up with what’s occurring on the enterprise capital facet. So, it is a chart of whole returns for ROBO over the previous 5 years, it is simply above 21% compound common annual price. You possibly can see the names of the businesses which have obtained a takeover provide throughout these 5 years. And as I stated earlier, within the seven or eight years that we have been operating it, now we have seen 25 takeover makes an attempt on our portfolio firms, out of a complete of about 80 within the portfolio.
So originally of the yr, in the event you transfer to the following slide, I need to spotlight a number of the offers we have seen this yr. And every of these takeouts usually occurs at a premium and that gives a tailwind to the portfolio returns. The primary one we noticed was FLIR programs. FLIR is a frontrunner in thermal imaging sensors. They’ve agreed to be acquired by Teledyne, that’s one other ROBO index members, for $8 billion. And FLIR is the worldwide chief in thermal infrared sensing, and so they have robust capabilities additionally in drones and machine imaginative and prescient. After which we noticed an important takeout, which is that of Nuance by Microsoft, for $16 billion. Nuance in conversational AI, is the one firm that is in all three portfolios. So I am going to let’s Zeno talk about the Nuance Microsoft state of affairs once we cowl AI in a couple of minutes.
Then we noticed Raven comply with be acquired by CNH, that is a $2.1 billion transaction. Raven has been within the ROBO portfolio for a few years. It’s a chief in agriculture expertise, particularly precision farming. They make autonomous options for farm gear and CNH is without doubt one of the international leaders in ag equipment. And in order that’s one other instance of how the larger organizations are actually seeking to purchase these autonomous and automation capabilities through acquisitions.
After which now we have HollySys, that is a frontrunner in manufacturing unit automation in China, is a Chinese language firm. It is obtained a number of presents, beginning final yr, to go non-public. One was led by a founder and former chairman of the corporate. One other one got here from the previous CEO of the corporate together with a non-public fairness group. And these presents have been about 30% of each the inventory value earlier than the data grew to become public.
There’s yet one more deal right here, that’s Blue Prism. About a few weeks in the past we heard from Blue Prism that they’ve been in discussions to go non-public, as effectively, with two totally different PE teams. The inventory jumped greater than 30% as effectively. Blue Prism is a high three participant in robotic course of automation, that’s RPA, that is primarily software program robots that automate enterprise processes. So, that is it for ROBO. I need to remind everybody which you could ask your questions through the Q&A field. And with that, I’ll cross it on to Nina to debate the healthcare tech.
Nina Deka:
Thanks, Jeremie. So, HTEC is our healthcare expertise and innovation index. The ticker is HTEC. As you may see right here, we have HTEC efficiency in comparison with the worldwide healthcare index, in addition to international equities. And as you may see over a 3 yr interval, healthcare tech has actually outperformed. In reality since inception the healthcare expertise and innovation index has greater than doubled simply common international healthcare indices. Once we take into consideration what’s driving this out efficiency, there’s a massive demand for lots of disruption occurring in healthcare proper now. An enormous alternative for digitization, automation, an increasing number of robots are being deployed and large development alternatives in genomics. As these applied sciences scale, they’ll get an increasing number of environment friendly.
So plenty of firms throughout the healthcare expertise panorama are literally taking part in M&A so as to go after and get publicity inside their organizations to plenty of these new applied sciences. In reality, in the event you had been to have a look at… Truly, the following slide can be… Yeah. So right here we discuss concerning the kind of the deal abstract right here. As you may see in 2019, there have been 59 offers throughout the HTEC index and so they totaled about 17 billion. After which that quantity skyrocketed in 2020, there have been 93 offers, totalling practically 67 billion. After which right here we’re yr up to now in 2021. And we’re probably on observe to be degree with final yr, if not surpass final yr by way of variety of offers and deal worth.
So, M&A is basically sizzling within the healthcare tech panorama and we’re seeing a typical theme this yr notably throughout the diagnostics companies. Just a few highlights. One firm specifically, Thermo Fisher Scientific, it is a international diagnostic big. They acquired PPD, a number one medical analysis group, often known as CRO. CROs are firms that assist pharma firms develop medication. And about two thirds of all drug improvement is outsourced to firms on this CRO business.
So Thermo is getting publicity to all the expansion occurring in biopharma. They acquired one other drug manufacturing firm, a number of years in the past, named Patheon, and now they’re within the drug improvement area additional with this acquisition of PPD. The valuation of the acquisition is sort of $20 billion in the event you issue within the debt and the deal is anticipated to shut in This fall of this yr. So simply to offer you an thought of what Thermo now has.
Going ahead is, PPD is a world chief in these medical analysis and medical trials. They function in over 50 international locations. Within the final 5 years, they helped help greater than 400 drug approvals. These are firms which are form of behind the scenes that lots of people do not hear about that actually assist pharma firms convey medication to market. And with this acquisition, Thermo expects so as to add a greenback 50 in earnings per share, through the first yr of possession of this asset.
In order that’s only one instance of the bridging that we’re seeing happening from the diagnostics world additional into the drug improvement world. There are different areas occurring in diagnostics. Danaher is one other firm. They’re a number one producer in life science diagnostics and lab automation. They usually acquired a medical analysis group, Aldevron, for $10 billion, in order that they may go additional into genomic drugs.
After which PerkinElmer, that is one other international main diagnostic firm. They acquired the most important acquisition within the firm historical past, BioLegend, for 5 billion. And this helps them get additional into the antibodies and reagents area. So actually thrilling issues occurring in drug improvement, notably as medication get an increasing number of into the precision drugs, if you’ll, extra into DNA and RNA forms of medication. So these diagnostic firms are going after this development space by means of M&A, and we count on to see extra of that sooner or later. So with that, I’ll pause and I am going to go forward and switch it over to Zeno, who’s going to assist us discuss THNQ.
Zeno Mercer:
Thanks, Nina. All proper. So, the THNQ index goals to seize alternatives and synthetic intelligence throughout our 11 subsectors, which cowl all the ecosystem, from core infrastructure to functions and providers. AI has confirmed to be instrumental, not only a good to have, however a have to have with ever rising quantities of information that requires fast evaluation and processing for each client and enterprise functions. And customary giants throughout all industries are investing in home, investing by means of partnerships and acquisitions as leaner AI pushed firms seem within the aggressive panorama.
Close to the date, the THNQ index is up 12.6% barely under the broader international market index that’s up 16% for the yr. Be mindful, the THNQ index surge greater than 68% in 2020, and it continues to outperform international indices on an annualized foundation. Of the 5 takeout presents this yr, there have been… Oh, maintain on. Slides of shifting round. There’ve been 97 accomplished acquisitions by THNQ index members, in 48 offers pending, for over 74 billion in worth to this point in 2021. That is on observe to match the 4 yr 97 billion in whole deal worth in 2020.
Notably, Sq.’s introduced its intent to accumulate Afterpay for $29 billion. A bid to tackle Visa, MasterCard, large banks, and direct to client finance, e-commerce and in-person, with purchase now pay later play capabilities. This deal brings collectively two of the quickest rising fintech powerhouses to superior monetary inclusion and accessibility to all.
One other firm, Nvidia, whereas going through regulatory hurdles for its Arm acquisition introduced final yr, has not stopped constructing its expertise portfolio to strengthen its management in AI with our acquisition of DeepMap, which does excessive definition mapping for autonomous autos, and this was at an undisclosed value. So, Nvidia you historically know as an AI developer for a {hardware}, however they’re more and more getting and realizing the significance of mapping out and being a powerful participant throughout the stack.
Autodesk, one other THNQ index member, made an attention-grabbing acquisition early within the yr with its one billion acquisition of Innovyze, representing an enormous alternative for good water infrastructure modeling and AI simulation for good cities. For each water administration for human consumption, waste administration and agriculture, however more and more essential for the impression of world warming as we have seen play out this yr. Lastly, one in all our cyber safety index members, Rapid7 acquired IntSights Cyber Intelligence, to cowl extra exterior threats for enterprise purchasers utilizing AI capabilities.
Of the 5 takeout presents thus far this yr for the THNQ index, 4 have been from non-public fairness buyers. By all corporations have been more and more lively this yr, buying cloud-based property as digital transformation takes maintain accelerated by the pandemic. However non-public fairness corporations, shopping for property like Cloudera, a number one supplier of enterprise information analytics and machine studying instruments, and Talend, a frontrunner in AI information integration, highlights the significance of constructing out the following technology of AI structure.
Extra just lately, Cornerstone OnDemand, an HR administration SAS participant, was acquired by Clearlake for practically $4 billion. These information analytic suppliers are key gamers in constructing mission crucial information pushed functions, the safety, governance, scale and management entry throughout the information life cycle. For the reason that alternative for AI functions are deploying at a fast price, a few of our index members need to ramp up their investments as a non-public firm, outdoors of the scope of the non-public or public eye. We’d not be stunned to see a few of these firms return in a number of years with accelerated development profile and market main positions within the AI ecosystem.
Most notably, THNQ index member, Microsoft, acquired fellow index member, Nuance Communications, for over $19 billion at a 23% premium. As Jeremie talked about earlier, Nuance has been a THNQ index member since exception and can be a member of ROBO and HTEC indices. Nuance has been a serious success as a pioneer and conversational AI and pure language processing for the healthcare area. Protecting each the medical setting and doubtless extra so moving into diagnostics and different improvements. They’ve an estimated 60% of market share, however they’d been buying and selling comparatively flat.
Microsoft CEO has known as out healthcare as probably the most pressing utility, and so they have been working with Nuance for a few years. This acquisition places them immediately within the recreation to enhance healthcare outcomes and automate the laborious administrative burden on our healthcare system. Now, I’ll cross issues on to Lisa Chai who will stroll issues or stroll by means of concerning the enterprise funding atmosphere.
Lisa Chai:
Thanks, Zeno. It has been fairly a yr thus far in enterprise funding market. Enterprise funding hit new highs with 156 billion within the second quarter alone, with a mixed whole of 288 billion for first half of the yr. Variety of exits, whether or not it is by means of an IPO, direct itemizing, M&A, SPACs are up over 109% yr over yr. We get plenty of questions on what we take into consideration SPACs usually. And we expect that SPACs are right here to remain. It continues to shatter data with virtually 400 SPAC filings, to this point surpassing final yr’s figures.
We’re seeing the standard of the businesses through SPAC even have elevated previously yr. So we consider that not all SPACs are created equal. So, in lots of circumstances there are some good alternatives in the event you spend the time to dig a bit deeper into their fundamentals. Investments in robotics slowed barely this yr, however total continues at a wholesome tempo after an enormous funding yr, final yr.
To date, in 2021, industrial robots look to be in a vivid spot with factories and warehouses investing of their amenities, as demand for e-commerce continues at a fast tempo. This yr, it appears to be like just like the yr for well being tech and fintech enterprise funding. We’re seeing elevated deal exercise in these sectors, as lots of them are utilizing subsequent technology AI capabilities. After which we expect there will be continued enterprise funding shifting into this area.
China continues to say no enterprise participation attributable to a difficult panorama of laws. Our analysis signifies that it’s down round 20% from final yr, and we do not know when it’ll get better. However long term, we consider that China will come again and they are going to be an lively participant once more. One of many largest IPO firms to debit this yr, that’s in enterprise AI, is UiPath, at 31 billion valuation. And that got here shortly after elevating 750 million early within the yr in non-public funding.
In the meantime, information intelligence supplier, Databricks, raised enterprise funding of 1.6 billion on the 38 billion valuation and Rivian raised 2.5 billion in enterprise funding this summer time at an $80 billion valuation. You will have heard of Rivian, they’re an electrical car producer and their rumored to go public, someday this fall. So, it is positively an thrilling time to be an EV investor.
There’s another actually wonderful progressive firms which have gotten funding this yr, throughout expertise and digital well being. I am going to spotlight a number of. Mollie for instance, is an the Amsterdam based mostly firm, utilizing APIs to combine funds into enterprise providers. They usually’re presently valued at 6.5 billion. We predict Mollie is without doubt one of the Most worthy fintech firms on the market on the earth. Most just lately they raised $800 million spherical to assist fund the following part of development. The corporate is now processing over $24 billion in funds, up 100% yr over yr. After which we count on the corporate to go public probably someday in the midst of subsequent yr.
Usually, we count on to see much more fintech offers within the enterprise market as digital spending by customers rises. The opposite one I like to focus on is Ledger. Ledger is one other fintech firm, however in a digital asset class, with its {hardware} pockets to handle your crypto property. Ledger relies in France and so they simply raised virtually $400 million in funding with a $1.5 billion valuation, so it is an organization to look out for.
In the meantime Noom, is a digital well being firm and so they just lately raised $540 million. It is an AI powered weight reduction app producing over 400 million revenues, greater than double the revenues from a yr in the past. With 45 million downloads and in 100 international locations, the corporate is seeing plenty of success with their personalised app the place AI can analyze the person’s behaviors and it could additionally reveal sure information factors on assembly your weight reduction milestones. So positively one other firm to look out for.
And to go a bit bit deeper into healthcare funding, with COVID-19 disruptions fostering the necessity for advert residence and distant affected person care fashions, each current and new entrance are seeing huge funding in adoption. Simply within the first half of this yr alone, digital well being funding is close to 15 billion and continues to outpace final yr’s determine of 14.7 billion.
I simply need to spotlight the highest 5 classes the place the enterprise funding is in Telemedicine at, 4.2 billion. Wellness at 1.7 and medical well being app often known as Digital Remedy is at 1.6 billion and Analytics at 1.5 and Medical choice help at 1.1 billion. In the meantime, on the following slide, AI investments proceed to soar. In response to CB Insights, in second quarter, we noticed $20 billion deployed to 550 AI energy startups, which is one other funding document. This yr, we noticed extra $1 billion valuation firms and ever within the historical past. There are about 24 AI unicorns, simply within the second quarter of this yr alone. AI exits additionally proceed to set a brand new document rising 125% yr quarter over quarter. So searching, we actually anticipate this AI funding atmosphere to proceed at a document tempo. Now I’ll flip this over to Jeremie after which we’ll in all probability take questions.
Jeremie Capron:
Thanks, Lisa. Fast reminder, you may ask your questions through the use of the Q&A field on the backside. We’ve a number of which have are available. I see there is a query across the particular expertise sectors that the portfolios present publicity to. I am going to clarify a bit bit about ROBO after which I am going to ask Nina to speak about HTEC, and Lisa, maybe you are able to do the AI portfolio. However primarily our funding methods share that in widespread, that we attempt to present publicity to all the worth chain of expertise disruption. So, if you consider robotics and automation, and the robotic portfolio, right here we’re trying on the suppliers of flip key automation options for particular vertical industries, manufacturing unit automation, in fact, but additionally take into consideration warehouse and logistics automation and the gear that goes into achievement facilities for e-commerce.
Take into consideration the software program spine for the automation of warehouses and issues like that. We’re taking a look at healthcare, in fact, and right here it is about surgical robotics. It is concerning the automation of hospital workflows. Take into consideration pharmacy automation and issues like that or the lab gear for pattern administration or the genomic evaluation. After which we take a look at the meals and agriculture sector. I discussed Raven, that is being taken over by CNH. Right here it is concerning the precision farming. It is concerning the expertise that goes into the manufacturing of meals and drinks. We’re taking a look at client as effectively. Autonomous programs, so take into consideration autonomous autos, autonomous drones, and issues like that.
It is about functions but it surely’s additionally concerning the expertise and infrastructure that makes it attainable. In relation to robotics and automation, we’re speaking about sensing, FLIR that I discussed earlier is a frontrunner in thermal sensing. We’re trying on the computing and the businesses that present the semiconductors and the compute energy for the brains of those automated programs. After which we take a look at the actuation, which is how the programs work together with the bodily world and kind of componentry and the mechanical components that make robots.
Actually, once more, the thought is you cowl all the worth chain as a result of the components of the worth chain the place the worth is created, or the expansion speed up, modifications over time. And we need to be certain we will seize that in a approach that gives comfy return and danger profile. Nina, why do not you discuss concerning the the sectors within the HTEC portfolio?
Nina Deka:
Positive. Yeah. And just a bit little bit of background with our historical past with ROBO. ROBO has healthcare as one in all its sectors. And what we noticed through the 5, six years that that index was operating was there was a lot disruption occurring in healthcare alone that we believed it required its personal index, its personal technique, therefore why we launched HTEC. So once we look throughout the HTEC universe, what we’re making an attempt to do is present buyers with publicity to all the areas in healthcare that we consider symbolize the following decade of development. There are such a lot of disruptive areas.
So we have 9 totally different subsectors. They embody robotics, telehealth, genomics, diagnostics, medical devices, precision drugs. These are all of the areas that we consider symbolize all of the disruption that is occurring. And I suppose there are non-HTEC healthcare indexes which are on the market, however the place we’re distinctive is that we aren’t solely centered in genomics. We aren’t solely centered in biotech, for instance. We’re not solely centered telehealth. We’ve this broad vary the place we solely choose the market and expertise leaders throughout the board. And in doing so we’re not solely offering publicity to those totally different areas, however as I discussed earlier there’s, there’s a lot exercise occurring, for instance, in diagnostics the place they need to leverage all the expansion occurring in precision drugs and new therapeutics. And they also’re going after that from an M&A standpoint.
Quite a lot of these firms all through the HTEC index companion with each other throughout subsectors. So when there’s one thing actually new and thrilling occurring like actually most cancers detection, it is not simply the genomics firms that profit from it, but it surely’s additionally our precision drugs firms and our course of automation firms. So by having this diversification throughout a number of totally different subsectors, you get to essentially leverage the expansion that is occurring from all these totally different progressive areas. Let’s examine, Lisa or Zeno, do you guys need to discuss a bit bit concerning the expertise methods throughout THNQ?
Lisa Chai:
Yeah. I may cowl this. So with THNQ, now we have 11 subsectors and you need to take a look at it as we’re actually making an attempt to purpose to seize all the ecosystem of synthetic intelligence. We’ve two classifications the place now we have the infrastructure and the functions. So in infrastructure, these are firms which are enabling and growing AI, firms within the semiconductor subsectors, firms within the cloud and information infrastructure. And these are firms which are actually enabling the optimization and functionality of AI functions for organizations.
And on the appliance facet, now we have subsectors just like the e-commerce and enterprise course of. And it is actually past simply enhancing the workflow and automation of an enterprise, but additionally serving to enterprises extract clever insights to allow them to have interaction with our clients, giving that personalised expertise like e-commerce subsectors. Inside the fintech, which I talked rather a lot about within the enterprise funding phase, the place you will see the fintech firms both within the e-commerce with a cellular cost or on-line market, otherwise you’ll additionally see within the enterprise course of utilizing synthetic intelligence to stop a fraud from occurring. So you will get the fraud alerts, bank card firms trying on the credit score scoring. So, you are seeing a lot of the functions and capabilities of AI being leveraged and being utilized by the enterprises in these subsectors.
Jeremie Capron:
Thanks, Lisa. Let’s transfer on to the following query, which is round what are probably the most enticing areas in our methods for future M&A. And I feel right here, once more, we will deal with the three portfolio individually and I am going to kick off with ROBO. In robotics automation, we expect that proper now there is a candy spot that’s logistics and warehouse automation. And that is actually pushed by this phenomenal acceleration in e-commerce we noticed, not solely through the pandemic, however actually over the previous decade or so. You have acquired giants like Amazon and Alibaba or JD in China which are setting the bar actually excessive, not just for their very own operations but additionally for all the business. And so each firm that desires to compete with the likes of Amazon, Alibaba or JD, actually need to step up by way of their use of automation to have the ability to match the efficiency of an Amazon supply inside typically only one enterprise day.
And so we discover plenty of curiosity in firms that may present the logistics automation options. It goes from materials dealing with, shifting packages inside a warehouse to autonomous cellular robots that may try this. The software program firms, simply the suppliers of software program options to automate warehouses after which the expertise infrastructure round that. From sensing to regulate programs, to compute, that is very, extremely popular. And so as we speak, logistics and warehouse automation represents about 12% of the worldwide index and now we have just below 10 firms in there. What about healthcare expertise? Nina, do you need to deal with that?
Nina Deka:
Positive. I imply, there’s simply a lot. There’s so many areas proper now that firms need publicity to. I suppose, one option to reply that is to have a look at… We titled our report comply with the cash, however in healthcare I typically consider comply with the medical error or comply with the loss of life price or comply with the prices as a result of healthcare prices are rising at an unprecedented price. The inhabitants is getting older at a tempo that’s unsustainable by way of the variety of healthcare employees that we’ll have over the following couple of many years. We have got extra healthcare employees, docs, and nurses retiring than we do new individuals coming into the system.
Areas the place you count on to see extra M&A funding are alternatives for automation. Anyplace the place somebody’s doing one thing manually is one thing like, take a look at the pharmacy the place human beings are nonetheless placing capsules into particular person containers to distribute to pharmacy clients. That may be automated. There’s robots that try this. There’s an organization known as Omnicell within the HTEC and ROBO index that gives that service. In case you take a look at medical errors, the third main reason for loss of life within the US, there are such a lot of methods to enhance that by means of higher AI. You possibly can additional help what a doctor does and assist them with their medical decision-making with AI components software program, with higher information analytics.
We will take a look at entire populations and decide some individuals who have not been to the physician shortly, would possibly need to get to a health care provider. And that approach they’ll have preventative care that can assist preserve them from having greater prices down the highway like diabetes and coronary heart illness. We coated it in our report, however Boston Scientific has had plenty of exercise happening. They need to get additional automated and higher procedures and capabilities for the cardiology area. They made a number of acquisitions there, PREVENTUS is a $1 billion acquisition.
We will see extra funding in wearable gadgets. Something that helps firms and med tech firms be extra interactive with the patron. Teladoc made one of many largest digital well being acquisitions final yr once they acquired Livongo 16, $18 billion. And that was a approach for them to be actually within the pockets of individuals with diabetes, hypertension, and weight administration to assist present teaching providers. So something that is going to assist drive wellness, to maintain individuals effectively earlier than they get sick, assist drive higher affected person expertise, higher client expertise, after which even have with trendy procedures, get them much more modernized and digitized.
Jeremie Capron:
Lisa, do you need to deal with enticing areas for M&A in AI?
Lisa Chai:
In AI, I feel you are seeing this subsequent technology of cloud providers occurring. And cloud is essential as a result of with out the form of the brand new trendy structure that is been presently being constructed and I feel that is why you are seeing this kind of the large acquisitions by the PE agency. That is to take a few of these firms and form of roll it up. It might be actually attention-grabbing to see what the form of the following part of development, these firms going to face.
However you are going to see plenty of, I feel, consolidation and acquisitions across the cloud expertise suppliers. Whether or not it is on the information analytics facet or whether or not it is the mixing and even enablement of multi-cloud options. So you are going to see plenty of these new terminology that is occurring. And that is all essential to the AI ecosystem as a result of you may’t actually run on actual refined superior AI algorithms on a conventional older expertise infrastructure. So, I feel that a number of the M&A exercise will proceed on that facet and clearly having that SAS sort of enterprise mannequin as very enticing.
Jeremie Capron:
Thanks. We’ve a query round portfolio development and why not enhance allocations to the highest well being dozen or so holdings, firms you consider are robust long-term advert efficiency. It is a essential piece of our funding technique. The place, as I stated the portfolios present publicity to one of the best at school firms which are on the forefront of this expertise revolution.
By design we have determined to not focus or bets on a handful of firms and moderately present diversified publicity to all the worth chain. And so the best way we do that’s by combining this analysis route and collection of one of the best firms with the advantages of index investing by way of the danger administration of your portfolio. And so we, roughly equal weigh our positions. It is not precisely equal weighted as a result of now we have a scoring system that can drive the place dimension to some extent. However on the finish of the day now we have place sizes that vary from just below 1% to only beneath 2% on the excessive finish.
We predict that is an excellent recipe by way of offering the publicity to the theme and expressing a bullish view on robotics, AI and healthcare tech. However on the identical time delivering it in a portfolio that has a lovely danger profile. Which means it might take you from level A to level B in a comparatively smoother approach than in the event you take concentrated wager.
So each investor can have a unique urge for food for that form of technique, however we expect thus far the outcomes have been fairly passable. There’s yet one more query on machine studying and possibly Lisa you may take that. Some firms develop machine studying capabilities in-house and others use machine studying platforms to supply their providers. Do you see any distinction by way of the aggressive benefits that present?
Lisa Chai:
It is attention-grabbing as a result of there are plenty of opinions round that and I feel it actually is dependent upon the enterprise resolution that you just’re offering. We do know for certain that there’s a scarcity of AI expertise. Some firms proper now, usually, the business is basically pivoting at this level the place we’re pressured to undertake a few of these API options or off the shelf AI functions and packages. So a few of these algorithms are going to be packed collectively the place it is simple to deploy and simple to make use of and fast to deploy. And that is as a result of we do not have sufficient information science expertise on the market.
So there’s been this huge form of coaching that is occurring with the software program engineers and making an attempt to steal plenty of expertise away from one another, so that is what we’re seeing. It may be attention-grabbing whether or not by way of the precise in-depth evaluation of the expertise, whether or not in-house is basically higher than kind of the off-the-shelf. That is going to be attention-grabbing to see that. However proper now I feel you do not have a alternative aside from whether or not you need to spend so much of assets round capabilities, in addition to constructing the information science expertise.
Jeremie Capron:
All proper. Properly, I feel it is time to wrap up. So, I need to thank all people for becoming a member of us as we speak, and we stay up for speaking to you once more subsequent month.
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