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AI revolution: Redefining deal dynamics across mergers, divestitures and IPOs
Generative AI remains at the forefront of the technology deal environment, as investors continue to back new companies in this space and private companies preparing for initial public offerings (IPOs) and public companies grapple with expected impacts. Through the first quarter of 2024, deal volume and value are up over the same period in the prior year, with the total deal value in Q1 2024 being higher than any quarter in 2023. The backlog of IPOs is beginning to slowly unwind, with some major listings already going public. Many companies that had paused their plans to go public are now setting their eyes on early 2025. We’re seeing positive signs of tech-based deal growth despite uncertainty around interest rates, inflationary pressures and global instability. The following are developments we’re seeing in technology deals that align with PwC’s overall M&A outlook:
- Technology and reinvention. Beyond traditional deals theses driven by consolidation in complementary industries, such as Hewlett Packard Enterprise’s (HPE’s) $14 billion proposed acquisition of Juniper Networks, strategic mergers are increasingly being driven by enhancing artificial intelligence (AI) technological capabilities. Cisco’s $28 billion acquisition of Splunk aims to combine AI with cybersecurity and cloud technologies. Synopsys' proposed acquisition of Ansys for $35 billion highlights the focus on merging AI with software design and simulation technologies. The upcoming Cohesity and Veritas data deal for $7 billion and the Nvidia and Run:ai transaction underscores the strategic importance of integrating AI into data management solutions.
- Improving investor confidence. Early 2024 saw companies like Reddit and Rubrik going public. AI's influence on the tech sector also accelerated, particularly in infrastructure and semiconductor companies, highlighted by Astera Labs' recent IPO and Lambda's $320 million Series C round.
- Regulatory evolution. Increased regulatory scrutiny continues to influence corporate strategies, as seen in Adobe’s withdrawal from its acquisition of Figma due to regulatory challenges from the UK Competition and Markets Authority in February 2024. The backdrop of the 2024 US Election remains a factor as the antitrust landscape potentially shifts.
Note: The primary M&A data source used in the midyear outlook is S&P Capital IQ.
How market conditions are impacting M&A strategy
AI’s expected impact has been a direct underlying factor in a number of recent megadeals in the semiconductor, networking and cloud infrastructure industries. In Q1 2024, the semiconductor industry witnessed at least one megadeal in anticipation of the demand for more compute performance and efficiency in the AI era: consider Synopsys’ acquisition of Ansys, an established simulation and analysis provider. Technology corporations are making big bets to avoid disruption and capitalize on the second-order demands AI promises.
Private equity (PE) firms are also looking to capitalize on the emerging AI trends and disruptive technologies, and they’re leading some megadeals of their own. In Q4 2023, Bain Capital acquired Guidehouse, a leading management consulting business that specializes in data, intelligence and AI adoption solutions for healthcare, energy and government clients. Alteryx, a provider of enterprise analytics, was taken private by Clearlake Capital Group and Insight Partners to gain exposure to the fast-evolving analytics sector. With a renewed focus on value creation and operational improvements, private equity dealmaking in 2024 and 2025 is expected to continue at the same pace while keeping an eye on the 2025 IPO window for potential exit opportunities.
2024 stands out as a year of strategic reinvention in the technology sector. AI-driven mergers and a keen focus on adjusting to regulatory landscapes and election-year uncertainties sets the stage for some potentially transformative transactions.”
The bottom line
The TMT sector in 2024 has been marked by an AI revolution that’s driving mergers, divestitures and IPOs. Exciting opportunities abound, but so do regulatory headwinds. The sector continues to navigate challenges and pursue innovation and adaptation while setting new industry standards. To prepare –– and thrive –– dealmakers should stay ahead of technological trends, anticipate election impacts and incorporate AI throughout the organization.
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