Why Cohere is merging with Aleph Alpha

Canadian AI startup Cohere is acquiring Germany-based Aleph Alpha, with the blessing of their governments, in an effort to provide a sovereign alternative to enterprises in an AI landscape dominated by US players. “Sovereign AI” refers to systems where companies and governments retain full control over their own data – rather than passing it through US tech giants like Microsoft or Google.

As companies developing large language models, Aleph Alpha and Cohere are their hometown stars, while still lagging far behind OpenAI and the like globally. But similarities aside, this is not an alliance between equals. Last rated on $6.8 billionCohere will lead the new entity into which Aleph Alpha will be incorporated, subject to regulatory and shareholder approval.

The main financier of the deal is Schwarz Group, a German retail conglomerate. As an existing shareholder of Aleph Alpha, it is already fully supportive of the acquisition. And going forward, it will also become a strategic supporter of the newly combined entity with €500 million in structured financing (approximately $600 million). In return, Schwarz Group expects the new entity to run on STACKIT – the sovereign cloud platform managed by its IT division, Schwarz Digits – making the retail giant a major enterprise customer for its cloud business.

To finance the combined entity, Cohere will also raise a new round of financing – a Series E – and Schwarz Group will serve as lead investor. The valuation has already been set: according to German business media company Handelsblatt, the term sheet pegs the combined value of the company at approximately $20 billion.

This would be a significant jump that combined revenues alone cannot justify. While Cohere reported $240 million in annual recurring revenue in 2025, Aleph Alpha had previously generated little income and significant losses. But investors are betting that working together will improve their chances against much bigger rivals.

They may not be the only ones who think consolidation is the way forward. Elon Musk’s AI startup xAI has reportedly discussed a three-way partnership with the French Mistral AI and Cursor, for which SpaceX recently secured the purchase option. But it remains unclear whether Mistral would be interested in risking undermining its positioning as an alternative to US technology that boosted its revenues. A partnership with xAI – an American company – would complicate that identity.

Cohere also hopes to gain support from companies looking for alternatives to AI providers that may not meet their requirements when it comes to privacy and independence. The new entity plans to focus on highly regulated industries – including defense, energy, finance, healthcare, manufacturing and telecommunications – as well as the public sector.

Aleph Alpha also developed specialized language models aimed at enterprises and public institutions in Europe, such as the PhariaAI suite. A subsequent pivot to building its own frontier models and the departure of co-founder and CEO Jonas Andrulis made strategy and leadership less clear and left the company in a weakened negotiating position. But the team of 250 people and their expertise could still complement Cohere.

“Their focus on small language models, European languages ​​and tokenizers is really complementary to ours, which has more of a general focus on large language models,” Cohere CEO Aidan Gomez said during a press conference announcing the plans on Friday.

Amid rising tensions with the United States, Canada is increasingly willing to sign bilateral initiatives with a variety of partners, including Germany. The two countries recently started working with a shared concern for privacy and security a sovereign technology alliance to “strengthen sovereign AI capabilities and reduce strategic technology dependencies.”

The question remains whether European organizations will view an initiative involving Canada as sufficiently sovereign, or whether they will trust that the alliance will remain transatlantic in the long term. According to Gomez, “Cohere will be a Canadian-German company.” But that promise could be harder to keep if the company goes public, putting ownership in the hands of global shareholders with no particular loyalty to either country.