Private equity giant Apax buys $200 million stake in Indian A.I. firm Fractal, valuing it at $500 million

  • Fractal is now valued at $500 million following the investment, according to a source familiar with the deal.
  • Apax bought existing shares owned by investors including Malaysia's sovereign wealth fund and TA Associates.
  • The firm will use Apax's investment to fund increased international expansion and mergers and acquisitions.
Fractal Analytics CEO Srikant Velamakanni at Mint's Enterprise Technology Summit on February 26, 2014.
Pradeep Gaur | Mint via Getty Images
Fractal Analytics CEO Srikant Velamakanni at Mint's Enterprise Technology Summit on February 26, 2014.

Indian artificial intelligence (AI) firm Fractal Analytics said Wednesday it raised $200 million from private equity giant Apax Partners.

The capital was raised through the sale of newly issued shares and existing shares owned by investors including Malaysia's sovereign wealth fund Khazanah Nasional and U.S. private equity firm TA Associates.

Fractal Analytics, which has offices in New York, London and Mumbai, is now valued at $500 million following the investment, according to a source familiar with the deal who preferred to remain anonymous because the valuation has not been publicly announced.

The transaction sees Apax acquiring a "significant minority stake" in Fractal, the company said. The deal is expected to close by February.

The company is making "about $100 million" in annual revenue, Chief Executive Srikanth Velamakanni told CNBC in an phone interview, and hopes to eventually cross the $1 billion annual revenue mark.

"We wanted to get a partner who could really be more than an investor and that is why we chose Apax," Velamakanni said of Fractal's new investor. "They have a good track record and know the space well."

Fractal, which was founded in 2000, is an enterprise-focused business that helps clients make decisions by using machine-learning algorithms. The company says it's partnered with multiple Fortune 500 firms.

The firm will use Apax's investment to fund increased international expansion and mergers and acquisitions, Fractal's chief said. It wants to build a presence in China, he said, a country that has become a powerhouse in the AI industry.

"We certainly want to expand into larger parts of Europe, Australia and very selective parts of Asia," Velamakanni said.

Velamakanni said China was a "fascinating destination" and "formidable force" when it comes to AI, pointing to the ease of companies like SenseTime to gain access to government data. Data are a crucial component of machine learning and analytics.

Alibaba-backed SenseTime, with a valuation of $4.5 billion, is believed to be the world's largest AI start-up. On the heels of raising more than $1 billion in total during 2018, the company is reportedly planning on raising a further $2 billion in funding.

IPO 'in the near future'

Fractal's boss added that the firm could see itself being a publicly-listed firm "in the near future."

"We certainly want to build that kind of company that has scale and the size of a public company," he said.

But Velamakanni added Fractal is not yet in a solid enough position when it comes to its financials for it to debut its shares in an initial public offering.

"As far as the position of earnings is concerned, we think we're still not there," he said. "Markets are pretty brutal and precise in terms of earnings."

Fractal's fundraise comes at a key moment for the AI industry. The machine learning and data analytics space has been growing rapidly, with tech giants from Silicon Valley's Google to China's Baidu vying for dominance. Research firm Gartner forecasts the sector will be worth more than $3.9 trillion in business value by 2022.