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The Takeaway

This year hasn’t lived up to the high expectations of the bankers and lawyers that advise tech companies on acquisitions. One major culprit is fear of AI-driven irrelevance, which has paralyzed corporate CEOs, according to some bankers and lawyers gathered in New Orleans for the annual Tulane Corporate Law Institute conference.

“I have a lot of clients who are not doing M&A right now because of all the uncertainty around how AI is going to affect their business and the business of potential targets,” said Scott Barshay, chairman of Paul, Weiss, Rifkind, Wharton & Garrison, on a panel. The New York–based law firm advises large companies, including some tech businesses.

There’s one area, however, where AI has been a boon to mergers and acquisitions: the increased interest in buying companies that aim to solve the technology’s seemingly insatiable demand for energy and computing power, bankers said. Some recent deals include those for data center developers.

So far this year, the volume of tech acquisitions announced or closed so far in the first quarter totalled $375 billion. But about two-thirds of that figure was due to one large deal: the acquisition by Elon Musk’s SpaceX of his AI lab, xAI, for $250 billion.

The number of deals, meanwhile, is on pace to fall from last year’s total. So far in the quarter, 735 companies have made acquisitions in which the buyer, the seller or both were in tech; for all of last year, there were more than 4,133 tech acquisitions.

Of course, it isn’t just AI that’s stalling dealmaking. Stock market volatility has made it difficult to price potential acquisitions. Plus, potential buyers are worried that the war in Iran, which has caused oil prices to spike, could lead to higher interest rates—making it more expensive to borrow for funding acquisitions.

They’ve already seen some debt-backed deals run into trouble. For instance, software firm Qualtrics’ planned acquisition of data analytics firm Press Ganey Forsta looks to be stalled after banks led by JPMorgan Chase halted talks with investors to lend $5.3 billion for the acquisition, according to Bloomberg.

What’s more, troubles at Blue Owl have rattled another class of big buyers of tech companies: private equity. Blue Owl and other private credit companies are lenders to private equity buyouts, but a rush of redemptions at some of their funds has limited their financing abilities.

But there are bright spots. The area of power production is ripe for plenty of M&A action as the industry is “massively short of electricity,” said Stephan Feldgoise, head of global M&A at Goldman Sachs, in a keynote speech at the Tulane conference.

Already this year, U.K.-based cloud provider Nscale agreed to buy American Intelligence & Power, a company that is developing a data center complex in West Virginia. Earlier in March, an investor consortium including BlackRock’s Global Infrastructure Partners and Swedish private firm EQT agreed to buy energy provider AES for about $10.7 billion in cash.

And bankers and lawyers at the conference expect several more acquisitions of companies that support AI data centers, from energy providers to real estate firms to those that provide liquid cooling, in the months ahead.

The AI-fueled software crash has boosted demand for bankers and lawyers for another purpose: to defend businesses against activist investors. These investors, smelling blood in the water after some companies’ stocks dropped 70% or more in a year, are expected to take stakes in enterprise software companies to pressure them to sell.

In early December, Starboard Value took a 5% stake in Clearwater Analytics, a provider of tech for investment professionals, and urged the company to sell itself. Later in the month, Permira and Warburg Pincus took Clearwater Analytics private for $8.4 billion.

Bankers said the vulnerable targets include HubSpot, which was down more than 50% over the past 12 months, though its shares have recovered a bit in the past month.