AI and the brave new world of deals
Global M&A is now dominated by the race to control the world’s energy, fibre networks and compute
The dawn of a new dealmaking era
Earlier this month, two US utilities announced a $420bn deal that would’ve been unthinkable a few years ago.
But in the dawn of the AI era, the tie-up of NextEra and Dominion has a clear logic.
At the heart of the deal is energy, the fuel of the AI boom. Dominion is the main supplier of power to “data centre alley” in northern Virginia, one of America’s hottest markets for the energy-hungry infrastructure.
The deal also exemplifies how AI has changed which companies matter. Utilities, long among the dullest corners of corporate America, have become gatekeepers to the infrastructure underpinning economic and geopolitical power.
It’s buoyed by the optimism that with Donald Trump relaxing antitrust enforcement and boosting AI development, regulatory approval is likely.
The NextEra-Dominion deal is the latest example of how AI has upended dealmaking, DD reporters detail in a Big Read, even as the future profits of AI companies remain uncertain.
Winning the AI race requires immense scale, far vaster than the software groups that grew with little demand for physical infrastructure. Training and operating new models requires chips, energy, fibre networks, data centres and financing measured not in billions, but trillions of dollars.
“The demand for capital from this global industrial renaissance that we’re going through is just off the charts,” Marc Rowan, Apollo’s chief executive, told investors late last year.
The boom has changed how transactions are structured and who finances them, with private capital giants such as BlackRock, Blackstone and Apollo rushing to make aggressive AI-related investments.
Blackstone argues greenfield projects in emerging sectors at times can be more profitable than the traditional strategy of acquiring existing businesses at a steep premium.
But for smaller players in the private capital industry, particularly midsized buyout firms, the AI boom has been punishing, squeezing the software groups that were at the centre of a decade-long private equity dealmaking spree.
Meanwhile, hardware groups such as Sandisk that were long dismissed as low-growth relics in a market obsessed with high-margin software have had their fortunes turn, as demand for data storage and computing capacity has surged.
The boom has also spurred innovation in how deals are structured. Hyperscalers have adopted a new M&A playbook to bypass regulatory delays with so-called “acquihires” — licensing a start-up’s intellectual property and hiring its top talent without acquiring the corporate entity.
But the seemingly unstoppable momentum faces a rapidly changing environment.
Capital markets will soon have to absorb initial public offerings of a size never experienced before, with SpaceX, OpenAI and Anthropic all set to be valued at about $1tn or more apiece. Some investors question the maths and the projected profits of the companies involved, evoking the memory of the dotcom bubble.
And Americans are lashing out against data centres and AI more broadly, which they blame for increasing electricity bills, threatening jobs and disrupting their communities.
AI has reoriented global M&A around a furious race to control the world’s energy, fibre networks and computing capacity. The question is, how long will the boom last?