Appen to acquire Figure Eight and create enhanced artificial intelligence training data solution

Australian artificial intelligence firm Appen (ASX: APX) has agreed to acquire US-based Figure Eight Technologies in a multi-million dollar move which will allow Appen to offer a high-quality AI training data solution to its customer base.

The union will combine the scale, quality and language expertise of Appen’s leading global crowd with Figure Eight’s “human in the loop” machine learning software platform which uses automated annotation tools to transform unstructured text, image, audio and video data into high-quality artificial intelligence training data.

Together, the companies will create an end-to-end training data solution for AI applications.

Appen chief executive officer Mark Brayan said the acquisition will materially increase the quality of Appen’s revenues and enable greater participation in the “dynamic and high growth” AI market.

“We now have the best of both worlds – our highly-efficient crowd management platform and scalable, skilful multi-lingual crowd, combined with Figure Eight’s innovative software-as-a-service platform,” he said.

“We expect this acquisition will meet and exceed our customers’ scale, speed and quality requirements.”

Until year-end, Figure Eight will operate as an independent division of Appen focused on product development and customer delivery, after which the two brands will fully integrate.

Transaction funding

The terms of the Figure Eight acquisition include a total up-front consideration by Appen of $248 million subject to certain purchase price adjustments at completion, currently scheduled for early April.

Appen has also agreed to fund Figure Eight’s earn-out consideration payable in March 2020, expected to be up to $113 million based on Figure Eight’s 2019 financial year budget and capped at $177 million.

Appen has entered into a commitment with a syndicate of global and Australian banks for up to $177 million of new debt facilities expected to be drawn down next year to fund the earn-out payment.

The upfront consideration and transaction costs will be funded through Appen’s $285 million fully-underwritten placement to institutional shareholders at an offer price of $21.50 per new share.

Critical player

Founded as Crowdflower in 2007, Figure Eight is believed to play a critical role in the AI ecosystem, having delivered more than 300 million “human judgements” in 2018.

The company has a diverse spread across the technology, government, retail and financial services industries, and maintains minimal overlap with Appen’s current customer base.

Annotation services are provided to clients such as Microsoft, Google, Spotify and eBay and global network of labour partners provide support for data annotation requirements.

Booming market

Industry research has shown the booming AI market will be worth as much as $270 billion by 2025, driven by applications such as chatbots, assistants, search, social media, online advertising, surveillance, computer vision, autonomous vehicles and facial recognition.

The majority of these tools rely on large volumes of high-quality training data and frequent data refreshes, and it is this push for more accurate applications which is driving market growth for AI training data.

By 2025, it is estimated that training data will represent up to 10% of the AI investment, translating to an estimated market opportunity of up to $27 billion.

At midday, shares in Appen were steady at $24.37.