Tech and digital infrastructure – Increased activity and scrutiny

Overall, the activity in the technology space slowed down in 2023 compared to 2022. Key highlights included Cisco's US$28 billion acquisition of software firm Splunk and acquisition of software provider Adenza by Nasdaq for US$10.5 billion. On the other hand, despite a softer M&A market, digital infrastructure investment activities continued to grow globally last year, with large investments being made into Southeast Asia. KKR acquired 20% in Singtel's regional data centre business for US$800 million while US-based Vantage Data Centers invested US$3 billion in a new data centre campus in Cyberjaya in Malaysia. While there will be challenges to the market, there are positive signs tech and digital infrastructure will be busy in 2024.

Key themes

Due to various challenges like digital transformation, disruptive technology and sustainability regulation, we have seen more and more dealmakers in the tech industry adopting alternative deal structures as opposed to typical M&A structures, including licensing arrangements, joint ventures or strategic collaborations. Dealmakers in this space are increasingly seeing value in the use of flexible corporate structures as it allows them to unlock value in businesses and harness any opportunities around tech innovation without the overhead of a full-blown M&A transaction. Of course, there are also a range of potential challenges in joint ventures, alliances and other strategic collaborations in the tech space that need to be addressed early in the arrangement to align expectations of both parties and ensure a successful collaboration, particularly given parties often have different strategic goals, timelines and levels of organisational complexity.

Across the globe, the growth in digital infrastructure (which includes network connectivity and compute/storage – data centres and software) will continue as digital infrastructure is fundamental to the way we live. There has also been increasing demand and large capital injections by private equity houses and large corporates in the digital infrastructure space, in particular, data centres, fibre and tower assets. We have seen a lot of activity in growing markets where digitisation is growing at a rapid pace.

Given the tech sector's reach into multiple aspects of business and also our everyday life, it has continued to attract regulatory scrutiny, in particular generative AI, antitrust, privacy and consumer data protection. This will no doubt pose challenges to the M&A market in this space as dealmakers will be more cautious when selecting targets and in undertaking due diligence. Intensifying regulation in relation to antitrust and merger controls, as well as regulation of foreign investment into significant technologies and data-heavy businesses, will also be another challenge parties will face this year – see our piece on the regulatory regimes that M&A parties need navigate in our global M&A report for more detail.

Outlook for 2024

Looking into 2024, we expect an uptick in M&A across tech and digital infrastructure given recent improvements in financial markets, easing inflation and projected a fall in interest rates. In particular, digital infrastructure is a bright spot and we expect to see more activity in international fibre, data centre platforms and towers. We also expect to see more traditional M&A transactions and alternative structures being used in technology deals.