Canadian AI start-up Cohere has agreed to acquire Germany’s Aleph Alpha in a transatlantic deal aimed at giving governments and regulated industries an alternative to US tech giants.

The combined entity will be anchored in Germany and Canada, pooling engineering talent and compute resources across the two G7 nations. It will target customers in the public sector, finance, defence, energy, manufacturing, telecommunications and healthcare.

As part of the deal, Germany’s Schwarz Group, the retail giant behind Lidl and Kaufland, is leading a €500m structured financing commitment into Cohere’s upcoming Series E round. Schwarz’s sovereign cloud service Stackit will act as the technical backbone of the venture.

The market opportunity is sizeable. McKinsey projects AI services will surpass $1trn annually, with sovereign AI needs accounting for close to $600bn of that total.

“Organisations globally are demanding uncompromising control over their AI stack,” said Aidan Gomez, co-founder and CEO of Cohere. He said the partnership would give enterprises and governments “the absolute certainty that their data remains their own”.

Ilhan Scheer, co-CEO of Aleph Alpha, said the combined company would give European institutions “access to powerful, yet controllable AI they can truly own”, and serve as a “real counterweight” for organisations that refuse to outsource AI control to a single provider or jurisdiction.

A transatlantic challenger

Forrester’s vice-president and principal analyst Thomas Husson said the deal creates “a unique transatlantic player designed to challenge the dominance of US giants”.

“While it is technically an acquisition by the Canadian firm, the real power is likely to be shared,” Husson said. “Cohere will provide cutting-edge engineering and global product and commercial leadership, while German players (and especially the Schwarz Group) provide the essential capital and political backing.”

He described the structure as “hybrid and unusual” and said it was aimed at “capturing the sovereign AI market to offer a secure alternative for governments of highly regulated industries to avoid reliance on US cloud laws”.

Husson said the tie-up will put pressure on French AI company Mistral in particular. “This will directly challenge Mistral AI who will now face a new rival combining North American agility with European regulatory trust,” he said.

However, Husson warned that success is not guaranteed. “Ultimately, the deal’s success depends on whether this dual-headed leadership can remain unified while competing against the massive budgets of giants like Microsoft, Google or OpenAI.”

The transaction is subject to approval by Aleph Alpha shareholders and competition regulators.

In August last year, Cohere raised $500m at a $6.8bn valuation and hired the former Meta vice-president for AI research Joelle Pineau as its first chief AI officer. Pineau, a Canadian computer scientist and a professor at McGill University, led Meta’s Fundamental AI Research team.

Cohere’s oversubscribed raise was led by Radical Ventures and Inovia Capital, with additional participation from existing investors including AMD Ventures, Nvidia and Salesforce Ventures.

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