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Tech deals increase in 2024 despite regulatory headwinds and election uncertainty
Deal volume and value in 2024 have increased relative to 2023, even with a shifting regulatory environment and uncertainty in the second half of 2024 due to US election cycles and resulting shifts . This was counterbalanced by exuberance around inflation reductions (and the fiscal response), continuing signs of an IPO recovery and the promise of AI. The first half of 2024 started out strong buoyed by several megadeals. However, they weren’t as prevalent in the second half of 2024. Overall, the tech deal environment continues to increase steadily from lows in late 2022 and 2023 as macroeconomic-driven deal friction steadily decreases. The following dynamics have influenced how deals are structured, scrutinized and executed across the tech sector in 2024:
- The regulatory landscape, driven by the Department of Justice (DOJ) and the Federal Trade Commission (FTC), brings heightened scrutiny to the mergers and acquisitions (M&A) environment with landmark decisions being brought against tech companies.
- Despite typical election year slowdowns, 2024 IPOs have exceeded those of 2023, signaling strong market confidence. Potential filers should keep a watchful eye over macro conditions and Trump’s administrative appointments and promised economic policies.
- The US regulatory environment (including the CHIPS Act), trends toward domestic nationalism, as well as broader international dynamics, continue to play a role in fueling M&A activities aimed at securing the access to computing needs and protecting domestic intellectual property.
- AI continues to drive investment in both the venture capital (VC) and private equity (PE) landscapes as dry powder looks to compete in a technology arm’s race.
- The compute power needed for AI is driving investments, M&A and joint ventures as the entire tech ecosystem looks to source infrastructure and meet energy demands.
Note: The primary M&A data source used in the 2025 outlook is S&P Capital IQ.
Strategic thinking
The regulatory landscape continues to bring heightened scrutiny. In the second half of 2024, the FTC blocked a number of high-profile tech deals and the agency finalized updates to the Hart-Scott-Rodino (HSR) premerger notification rules, requiring more strenuous reporting and documentation. The DOJ made its case against several tech companies, most recently asking a judge to force Google to divest Chrome. With a Republican-led administration and Congress, uncertainty looms over how M&A actions will be scrutinized. In response, companies are turning to alternative transaction structures, with the technology sector seeing a rise in AI-related licensing deals following the FTC’s increased focus on AI transactions in 2024.
The tech sector is doubling down on investments to meet AI’s soaring energy and infrastructure demands. In fact, by some estimates, nearly 40% of VC funding in cloud firms is directed to generative AI startups. In the third quarter of 2024, Microsoft and Blackrock launched a more than $30 billion fund for AI infrastructure, while Nvidia made five generative AI acquisitions and AMD acquired ZT Systems for $4.9 billion. Major tech companies are also investing in nuclear technology to meet AI’s growing computational demands.
Tech companies should view divestitures as an opportunity to modernize their IT landscapes and address the limitations of aging on-premise systems while aligning with cost-saving goals.
With major vendors like SAP and Oracle phasing out support for older systems by 2027-2030, chief information officers (CIOs) face a pivotal decision: replicate legacy environments for divested entities or adopt modern cloud-based solutions. Public cloud and SaaS models not only provide agility and scalability but also align with broader cost-reduction strategies by eliminating redundant systems and streamlining operations.
Divestitures demand careful IT planning under tight timelines, but emerging technologies can simplify the process and reduce risk. Cloud solutions in particular accelerate transition planning, reduce capital expenditures and scale infrastructure needs efficiently. By leveraging automated provisioning, self-service tools and software-defined networking, CIOs can mitigate divestiture risks while enabling transformative change.
Beyond practicality, adopting cloud solutions positions companies to stay competitive. Modern architectures support advanced capabilities like AI, enhancing innovation and operational efficiency. However, CIOs must navigate challenges like data migration, security concerns and aligning stakeholders, particularly skeptical CFOs, to facilitate a seamless transition. For organizations undertaking divestitures, modernizing IT isn’t just about meeting today’s needs — it’s about future-proofing operations and unlocking strategic growth.
“Expected change in regulatory landscape and exuberance in AI will likely drive deal volume higher in 2025.”
The bottom line
The technology sector in 2024 has been marked by excitement surrounding AI and its implications on legacy tech, existing infrastructure and new applications. AI innovations are poised to optimize software platforms, enabling tailored solutions, and empowering hybrid approaches that integrate generative AI, machine learning and digital twins to enhance capabilities and reduce traditional system reliance.
The sector continues to navigate challenges and pursue innovation and adaptation. To prepare — and thrive — dealmakers should stay agile by understanding the latest technological trends, evolving regulatory environment and the impacts of the latest election cycle.
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