Artificial intelligence startups Cohere Inc. and Aleph Alpha GmbH today signed a merger agreement.

The contract formalizes a plan that was first announced in April. Cohere and Aleph Alpha stated at the time that German retailer Schwarz Group GmbH was planning to provide the company with €500 million, or about $573 million, in financing. Last week, The Global and Mail reported that a consortium backed by the Canadian government could invest another $3 billion.

Toronto-based Cohere develops artificial intelligence models for the enterprise market. Its product portfolio is headlined by a series of open-source large language models called Command. The company also offers more specialized algorithms optimized for tasks such as translation and search. Cohere’s newest model, Parse, turns documents into a format that can be easily processed by AI agents.

The company makes money by selling access to its models through an application programming interface. It also offers an AI productivity service called North. According to CNBC, Cohere’s revenue reached $240 million last year.

The AI provider received a $7 billion valuation last September. The company set to emerge from Cohere’s merger with Aleph Alpha will reportedly be worth $20 billion, which suggests that investors expect the deal to unlock significant growth opportunities.

Germany-based Aleph Alpha develops small language models for enterprises and government agencies. According to the company, its engineers build custom evaluation benchmarks to verify that its algorithms work as expected. Aleph Alpha also helps customers with subsequent tasks such as deploying models in production.

The company pursues foundational AI research alongside its commercial work. Last year, it introduced a library that can double the inference performance of LLMs. More recently, Aleph Alpha detailed a new approach to preventing AI hallucinations in retrieval-augmented generation systems.

The AI developer has raised about $126 million in venture funding. Its backers include Schwarz Group, the retailer that plans to support the merger with a $573 million investment.

Cohere and Aleph Alpha intend to operate under the former company’s brand once the deal clears regulators. The combined organization will maintain dual headquarters in Berlin and Toronto. Aleph Alpha’s current headquarters in the German city of Heidelberg will operate as an AI research center.

According to Cohere, one of the combined company’s priorities will be to establish a broader partnership with Schwarz Group. The retailer has a cloud unit called STACKIT that hosts AI workloads and other applications for third-party organizations. Last year, it announced plans to spend €11 billion on a new data center that will host up to 100,000 graphics processing units. 

Image: Cohere