Waves of investment: Quantum computing dealmaking gathers pace

Data InsightDealspeak 20 February

Waves of investment: Quantum computing dealmaking gathers pace

The digital computer age has been built on ones and zeros. However, a change is coming: Quantum computers use quantum bits (or qubits), which exist simultaneously in multiple different states.

Technical language can bamboozle the untrained brain, but the basic principle is simple. These machines are increasingly able to exploit the weirdness of quantum mechanics to perform calculations and solve problems that prove too complex for digital (or classical) computers. 

Although the technical details can be mind-bending, the implications are significant for dealmakers. According to a recent study, the sector is expected to be worth USD 850bn by 2040. Despite macroeconomic headwinds, global dealmaking in the quantum computing space totaled EUR 1.7bn last year, according to Dealogic. That is more than 16x the EUR 100m recorded in 2019.

North America and Asia Pacific (APAC) accounted for the lion’s share of deal volume in the past 12 months, but there are also signs that the European quantum computing sector is maturing. Indeed, of the 21 deals that took place globally in the quantum computing space last year, more than half were born in Europe, the Middle East and Africa (EMEA).

Just last week, Swiss quantum security and cryptography specialist Terra Quantum announced an undisclosed investment from Bahrain-based sponsor Investcorp, less than a year after raising its USD 75m Series A round. EMEA quantum computing deal values so far this year have already reached almost half of 2022’s total, with EUR 140m from six deals.

Knocking it out of the quark

While funding rounds still make up the majority of quantum computing dealmaking in Europe, M&A consolidation in the region is gathering pace. France’s Pasqal, which develops quantum processors for industrial applications, could study bolt-on opportunities as part of its plans to expand in Europe, Canada and the US, CFO Raphael Fauveau told Mergermarket last week. 

The company, which announced a EUR 100m Series B fundraise last month, completed its first acquisition last year when it bought Dutch quantum algorithm and software developer Q&Co.

Other potential consolidators in Europe include Finland’s quantum computer developer IQM, which raised EUR 128m from investors including World Fund last summer, and Spanish quantum software developer Multiverse Computing, which aims to secure EUR 50m in new funding before August.

Other examples of recent deals include North Carolina-based computer technology company Honeywell [NASDAQ:HON], which merged its quantum division with the UK’s Cambridge Quantum Computing in 2021. Majority owner Honeywell plans to invest up to USD 300m in the new company.

Gimme Moore

In 1965, Intel [NASDAQ:INTC] co-founder Gordon Moore posited that the number of transistors on a single microchip would double every year. In the 1970s, he downgraded this prediction to the number doubling every two years.

Moore's observation, which has been proved largely accurate in the subsequent years, has underpinned the creation of the modern world. Transistors can generate on or off states. These can be interpreted as ones and zeros, which are the building blocks of the digital age. 

Supremacy in microchips translates to supremacy in advanced weaponry, which forms the basis for the ongoing trade war between China and the US, as Dealspeak EMEA discussed last week.  

There has been a fierce debate recently in Silicon Valley about whether Moore’s Law is running out of steam. In a sense, though, the dawn of quantum computing makes the debate about transistors meaningless. Quantum computers still use semiconductors, but in new ways that vastly increase their power. 

Innovation from quantum entrepreneurs combined with sector consolidation and investment from US giants like Intel, Alphabet [NASDAQ:GOOGL], Amazon [NASDAQ:AMZN], IBM [NYSE:IBM] and Microsoft [NASDAQ:MSFT] will almost certainly drive improving processing power for years to come. Dealmakers can rest assured that momentum will continue, even if that means that the position of the sector at any one time is unclear. 

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