The sale of German conversational and agentic artificial intelligence (AI) company Cognigy to NiCE is seen as a first step in what will be a “very exciting period of AI M&A” over the next two to three years, Guy Ward Thomas, partner at Cognigy’s backer DN Capital, said.

While DN Capital and other existing investors, including Eurazeo Growth, DTCP and Insight Partners, were not planning on exiting their investment in Cognigy just yet due to the company’s long-term potential, the shareholders, together with the company’s board, decided to proceed with an exit after being approached by US and Israel-based NiCE, which was one of Cognigy’s existing strategic partners.

The strategic rationale of combining two leading technology platforms was very strong, bringing together “a very powerful holistic product proposition for clients seeking to automate and improve efficiency of their customer service operations,” Ward Thomas said.

“This is a very powerful strategic combination of two businesses. There was something special and appealing about this due to the product tie-up and synergies,” he added.

The deal will accelerate Cognigy’s expansion in the US, enabling it to capitalise on NiCE’s strong market presence, brand and sales power, and will give it access to more enterprise clients, he said. It will also help Cognigy access valuable customer data, which will help in training and refining its product for the future, as well as bring synergies, he added.

Meanwhile, the tie-up will help NiCE further penetrate the European market, he said.

The deal valued Cognigy at around USD 955m in Europe’s largest AI deal to date, as announced.

“This is a huge moment for Europe, showing we can build AI companies with global reach and impact,” Ward Thomas said.

“It is also the first step in what will be a very exciting period of AI M&A over the next two to three years as enterprises adopt these solutions and look to acquire companies that can build their capacity to develop in this space.”

Following NiCE’s approach in 1Q of this year, talks between the two companies progressed to the exclusivity stage after an offer was put on the table during 2Q, Ward Thomas said.

Qatalyst Partners was the exclusive financial advisor to the sellers while Jefferies acted as financial advisor to NiCE, as announced.

While there was no competitive process run, Cognigy had attracted strong inbound interest in recent years from a number of potential strategic buyers operating in and around the same space, Ward Thomas said, adding a private equity exit had never been on the cards.

Cognigy’s valuation reflected its product’s recognition as one of the strongest players in conversational automation and agentic AI by sector analysts such as Gartner, Opus and IDC, Ward Thomas said. It also reflected the strength of its team and its fast growth, he added.

DN Capital achieved a return of 22x to 23x its initial c.USD 6m investment and a total return of close to USD 100m, he said. At the time of the exit, it held a stake of more than 10%.

DN Capital first invested in Cognigy in 2019, leading its EUR 5.5m (USD 6.4m) Series A round, Ward Thomas said, adding that this was the company’s first institutional capital round. In 2021, it raised USD 44m in a Series B round led by Insight Partners, followed by a Series C round in June 2024 of USD 100m led by Eurazeo Growth, with participation from existing investors.

DN Capital worked closely with Cognigy’s management team and supported its expansion into the US, including growing its team, helping it secure more customers and introducing it to other investors, as well as bringing capital, Ward Thomas said. It also helped the company with strategic advice, including with management hiring processes, he added.

Cognigy has grown organically to date, and has not considered M&A since it has grown at a significant rate organically, he said.

Cognigy expects 80% annual recurring revenue (ARR) growth by the end of 2026, Ward Thomas said. The company is targeting USD 85m ARR by the end of 2026, according to a presentation call following the deal announcement.

There is significant growth ahead, Ward Thomas said, adding that the company had recently expanded into the UK market, where it is still pretty under-represented.

“There is growth potential everywhere for this business. We are in the early innings for conversational AI in terms of the proportion of conversations that are automated,” he said.

Düsseldorf-headquartered Cognigy’s flagship platform, Cognigy.AI, enables enterprises to deploy AI agents that think, adapt, and act independently to deliver human-like service. Available in more than 100 languages, its agents deliver instant personalised service – freeing human agents to focus on complex, high-value interactions.

Cognigy’s clients include Mercedes-Benz, Nestlé and Lufthansa Group.

DN Capital has been investing in AI businesses since 2001, Ward Thomas said. Over the past 10 years, DN Capital has focused strongly on enterprise AI businesses, which led it to the Cognigy investment, he said. Other companies in its portfolio include US-based digital authentication company Incode, German anti-fraud platform HAWK:AI, and US accent translation technology software company Sanas.ai.

DN Capital, which is headquartered in London and invests globally, has a strong focus on Germany and the broader DACH region, Ward Thomas said. It has three teams, covering consumer and marketplace, enterprise software, and fintech. Ward Thomas is part of the B2B side of the enterprise software team and also where it overlaps with fintech and selling software into financial services firms, he said.

It has more than USD 1bn assets under management (AUM), according to its website.