Tech M&A in 2025

After a dip in activity, M&A in Europe, the Middle East and Africa (EMEA) recovered in 2024, with each of Q1-Q3 showing an increase in deal value year-on-year. We expect that 2025 will build on this, with further rate cuts globally and pressure on PE funds to deploy record levels of dry powder ($4.5tn at the end of H1 2024). 

Tech was the most active sector in 2024, accounting for 18% of potential deals and seeing a 29% year-on-year Q3 value increase, and for 2025 there is no obvious challenger. Large deals were popular, and we see multiples continuing to rise given the high growth rates of EMEA tech companies. With intense competition for targets, the largest deals were partial investments, such as Bharti Global’s £3.6bn purchase of a 24.5% stake in UK telecoms giant BT. This seems likely to continue, with recent data suggesting that in their 2025 tech M&A strategies, 80% of private equity firms are considering minority investments. 

Software represented 80% of tech deal value in Q1-Q3 2024 and we expect that trend to continue. We also see the continued growth into 2025 of “reverse” acqui-hires, where instead of buying a target outright a company will selectively hire its employees and license its software, as Amazon did in August with AI robotics startup Covariant. 2025 tech deals may cluster around sectors already transformed by AI software, like business services and e-commerce. 

We also see the UK forging its own tech-friendly path. The UK led EMEA M&A in 2024, with deal values over twice as high as Germany’s in second place. UK tech will remain attractive to both PE buyers (see Thoma Bravo’s $5.3bn acquisition of cybersecurity player Darktrace) and strategic players (see Informa’s £1.2bn acquisition of Ascential), given the country’s deep talent pool and valuation discounts vs. the US. UK tech startups and scale-ups secured £7.4bn in funding in H1 2024, a 16% increase year-on-year representing nearly one third of all European VC funding, and again we see that continuing given the relative stability of the UK and renewed focus on innovation. Whilst structural and regulatory reforms seek to unblock the IPO pipeline, M&A will be the dominant exit route in the sector in the meantime. 

Political backdroup

2024 saw over half of the world’s population vote in elections. In the UK, market and business reaction to the new Labour government was initially muted, but the rally in UK M&A has shown investors’ confidence and we expect it to accelerate. Labour has introduced significant opportunities for high-growth tech companies and their investors, including the largest-ever UK government investment in R&D (£20.4bn) and the ten-year extension (until 2035) of the Enterprise Investment Scheme and Venture Capital Trust. More generally, a renewed focus on investment in the European tech sector is inherently likely to drive more M&A.

In the US, by contrast, Donald Trump’s 2024 election victory inspired an immediate rally in US stocks and optimism among dealmakers. However, Trump and his Vice President-elect JD Vance do present the tech sector with some uncertainty. While major tech figures like Elon Musk and potentially Mark Zuckerberg will be close to the new administration, Vance and other future officeholders have indicated an interest in some extent of a break-up of Big Tech. This would create highly desirable new target companies but also further disturb deal flow from some of tech’s most prolific buyers (negating the potential shift in regulatory backdrop described below).

Geopolitical tensions (particularly conflicts in Ukraine/Russia and the Middle East, plus potential trade wars between China and Trump’s US) could affect decision-making regarding international expansion, supply chains, offshoring, and personnel movement – factors which may in turn drive M&A decisions themselves.

Regulation

The antitrust landscape in Europe and the US has been notoriously challenging in recent years for large tech acquisitions (see Adobe’s attempted acquisition of Figma as an example). In the UK, the Digital Markets, Competition and Consumers Act will widen the powers of the Competition and Markets Authority (CMA) to review tech deals and the Digital Markets Act in the EU will bring enhanced scrutiny to all M&A deals by the largest of tech companies.

However, the picture is far from one-sided. For example, the CMA has cleared the £15bn Vodafone / Three telecoms merger with behavioural remedies and will conduct a review in 2025 of its approach to merger remedies, which opens the door to more flexibility. Mario Draghi, former Prime Minister of Italy, has suggested that certain tech mergers be given an “innovation defence” in EC review, and the combination of a new EU Competition Commissioner and the ECJ’s striking down of the decision to block Illumina / Grail may bring about a significant change in environment.

That said, we expect tech dealmakers to continue to address regulatory risk through contractual protections, such as reverse break fees and “hell or high water” clauses, which require a buyer to do everything in its power to secure clearances.

AI

AI underscored many of 2024’s biggest tech deals, both in AI products and also in AI-driven industries such as data centres (see the $16.1bn buyout of AirTrunk by a Blackstone-led consortium as just one example). By volume, AI M&A grew 33% year-on-year in Q1-Q3 2024, outpacing tech M&A overall. These trends will continue into 2025 as more AI use cases are tested.

Dealmakers must consider the EU’s AI Act, which became law last year and whose compliance deadlines begin on 2 February 2025. The Act catches systems developed anywhere so long as they are put on the market or into service in the EU, and affects not just developers but also corporate users of AI. Its maximum penalties are severe: the higher of 7% of global turnover/€35mn (vs the GDPR’s 4%/€20mn). Similar legislation is coming in around the globe.

Buyers will focus on this more in due diligence and contractual protections, such as compliance warranties, indemnities to cover historic breaches, and/or conditions precedent to compel sellers to achieve compliance before closing, e.g. by conducting model evaluations.