Is the quantum computing sector already ripe for a round of M&A?
MicKinsey & Co. last month pointed out that investments in quantum computing start-ups more than doubled from 2020 to 2021, with the total amount invested in such firms reaching $1.7 billion over the last several years. The total count of companies working in the space numbers at least several dozen, with many more having some stake in the segment via projects under development.
Last year, the sector saw at least two SPAC-led reverse mergers to take IonQ and Rigetti public, and at least one traditional deal when Honeywell merged its quantum computing unit with Cambridge Quantum to form Quantinuum.
This week, with 2022 barely underway, the sector saw another merger, with France-based Pasqal, a developer of neutral atom-based quantum processing technology, and Qu&Co, a quantum algorithm and software developer from the Netherlands, uniting.
Financial terms for the deal were not disclosed. It’s a combination of two small firms, with the total number of employees for the combined entity coming in around 60. The two companies share a common leading investor, Quantonation, a Paris-based venture capital firm that has described itself as the “first VC fund dedicated to quantum technologies,” but that was only one factor leading to the deal, according to Pasqal CEO Georges-Olivier Reymond.
He told Fierce Electronics via email that Quantonation “facilitated introducing the idea and initiated the discussions,” but he also provided a list of other deal drivers, including the need to accelerate product development, offer “new solutions to our customers' challenges and address new markets (chemistry as an example).” He added that Qu&Co has a talented team that recently was among the winners of a BMW Group-Amazon quantum computing challenge, and that the ability to onboard more talent was a consideration for merging.
In addition, he described Qu&Co as “a great fit for Pasqal,” and that both companies shared the common goal of wanting to build “a European leader in the quantum industry.”
Under the deal, Qu&Co’s quantum algorithm portfolio will be closely integrated with Pasqal’s quantum hardware, providing additional value to customers such as Johnson & Johnson, LG, Airbus and BMW Group, the companies said. They also stated that they will together target markets such as chemistry, life sciences, automotive, electronics, utilities, aerospace, defense, finance and others with their quantum-based solutions.
What’s in store for 2022?
The Pasqal-Qu&Co deal could be the first of many such moves to come in the quantum ecosystem this year as more small and large firms look to combine resources and talent.
In recent weeks, there has been some chatter around the sector about the possibility of a “quantum bubble” that grew as the number of quantum firms jumped last year and the value of a handful of quantum stocks rose quickly in the fall of 2021. Most quantum-related stocks have fallen sharply in recent weeks, though this has been the case with many tech companies listed on Nasdaq.
A crowded marketplace can factor into consolidation, but the need for more funding, greater market reach and skilled employees also can drive deals, as evidenced by this week's news. But there also remains the possibility that the sector could see still more start-ups arriving on the scene in 2022, particularly as the technology becomes more practical to work with.
Some in the quantum sector already are predicting both kinds of activity--more consolidation and more new investment--will happen this year. Rob Hays, CEO of Atom Computing, another neutral atom quantum computing company, stated in a blog post this week, “While the size and growth rate of investment is large, the expected size of the quantum computing market is much larger. We are at a point where quantum computing is turning a corner from scientific research and proofs-of-concept to hardware and software engineers building products with commercial promise in the next few years. More investment is required to deliver large-scale quantum computing that benefits a broad set of industry verticals and use-cases. I expect the amount of money invested in quantum computing to continue rising in 2022+ with more companies entering the race. At least two companies have signaled intent to IPO soon. I wouldn’t be surprised to see at least 5 major acquisitions or IPO announcements before the end of the year.”