Toronto AI chatbot firm Ada to merge with U.S. company Dialpad in $600-million deal

Ada Support Inc., the Toronto-based company that makes AI customer service software for businesses, has agreed to combine with U.S. company Dialpad Inc. in an all-share deal valuing the Canadian enterprise at around $600-million, or about US$430-million, said two sources familiar with the matter.

That’s down from Ada’s US$1.2-billion valuation when it raised money at the peak of the pandemic technology bubble in a US$130-million financing round led by Silicon Valley venture capital firm Spark Capital. At the time, that financing made it part of a cohort of Canadian “unicorns,” or privately held technology companies, that achieve a valuation of US$1-billion or more.

Tech valuations subsequently plummeted starting in late 2021 and those of legacy software providers have remained depressed due to lingering questions about how much large language model-powered (LLM) artificial intelligence software will disrupt the market. Like other emerging technology companies, Ada subsequently made a series of layoffs and cost cuts, including eliminating half its marketing team in July and laying off 25 employees last week, two other sources told The Globe.

The Globe is not identifying the sources as they are not authorized to discuss the matters.

Ada chief executive officer Mike Murchison and David Hariri co-founded Ada in 2016 after launching an earlier social media startup. The firm sold a software system that let businesses set up their own customer service chatbots, initially using elaborate prewritten scripts.

In addition to answering questions, Ada’s technology connects to clients’ other software systems to do tasks such as updating contact information, changing bookings or issuing refunds.

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The firm’s website lists customers including Caribbean telecom provider Digicel, Canadian retailer Indigo and Asian consumer superapp Grab. It’s also counted Shopify, AirAsia Group BHD and Telus Corp. among its clients.

Mr. Murchison did not immediately respond to a request for comment about the transaction.

Ada grew rapidly in its early years, generating tens of millions of dollars in annual revenue by the early 2020s, and raising money from several leading Canadian venture capital firms as well as U.S. heavyweights Accel, Bessemer Venture Partners, FirstMark Capital and Tiger Global Management.

While Ada was early to the business of AI chatbots, it’s faced increasing competition in recent years, particularly following OpenAI’s launch of ChatGPT in November 2022.

Ada rebuilt its technology to use LLMs, letting the bots more dynamically take in and respond to users’ questions. In April 2023, it rolled out voice agents that could answer customer service phone calls. That led to a rapid decline in revenues from its older products but an equally quick expansion of its LLM-based offering. But the net result, said the two sources familiar with the deal terms, was that Ada’s overall revenue expansion has not kept pace with other rapidly growing AI-based companies.

Dialpad is a San Francisco Bay Area software company that sells contact-centre software to businesses and has been in operation since 2011. The company, which like Ada achieved unicorn status during the pandemic, also has a deep bench of top-flight U.S. early-stage investors including Andreessen Horowitz, Google Ventures, SoftBank Corp., ICONIQ Capital and Salesforce Ventures, as well as the growth equity arm of the Ontario Municipal Employees’ Retirement Systems.

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Last October, Dialpad launched an agentic AI platform, supplying the software for businesses to build autonomous voice-and-text AI agents. Some of its clients include Randstad, Nasdaq and T-Mobile. AI agents make decisions or execute on actions autonomously on behalf of human users.

One of the sources familiar with the deal said Dialpad has a strong user base in enterprise telephony for internal and customer support, and that the deal is seen as a way to help both companies generate continued market growth with Ada’s advanced technology.

The deal is expected to close as soon as next week.

There have been significant shifts in Ada’s work force in recent months. In a recording of the July layoffs, obtained by The Globe, Mr. Murchison can be heard telling employees that his decision to terminate their employment was related to a “change we are making around how Ada is building products.” Two of those laid-off employees, who spoke to The Globe on condition of anonymity, said that Mr. Murchison had been keen on amplifying the use of the AI agent Claude in workflows, especially on the marketing team, to cut costs. They believed that their layoffs were the direct impact of AI use within the company.

Ada co-founder Mr. Hariri left the firm in July for a product management role at Shopify, according to his LinkedIn profile, although he remains on the board. Ada’s chief marketing officer and chief customer officer have also exited this year.