Technology M&A Shifts Toward Fewer, Larger Deals Amid AI Revolution

The technology sector’s merger and acquisition activity in 2024 revealed a fundamental shift in deal-making strategy: Companies executed fewer transactions but committed far larger sums per deal.

Tech M&A generated over $450 billion across more than 3,300 transactions, marking declines of 17 percent in value and 2 percent in deal count year over year, according to a new study from Travelers and PitchBook. Yet the story behind these numbers tells a different tale — median deal sizes more than doubled as strategic buyers pursued transformative acquisitions rather than incremental bolt-ons.

This evolution reflects an industry under pressure from multiple directions: the artificial intelligence revolution demanding massive infrastructure investments, intensifying competition for talent and market share, and regulatory scrutiny around data privacy and antitrust concerns. Rather than spreading capital across numerous small acquisitions, technology leaders are making concentrated bets on companies that can immediately strengthen competitive positioning in critical areas like AI capabilities, semiconductor manufacturing, and cybersecurity. The result is an M&A landscape where scale and strategic fit matter more than transaction volume.

The AI Imperative Reshapes Deal Strategy

Technology has become nearly synonymous with artificial intelligence, as rapid advances have transformed companies like OpenAI into household names and magnets for Big Tech investment. Leading AI models are now established and backed by powerful balance sheets, creating a two-tiered market where smaller application-layer companies still have room to innovate and scale before being acquired by larger players seeking to integrate these capabilities.

The ripple effects extend throughout the technology ecosystem. Electronics manufacturers are experiencing surging demand for semiconductor chips and data center infrastructure, fueling intense investment and competition. This AI boom helps explain why blockbuster deals — some exceeding $30 billion—continued to close in 2024 despite macroeconomic headwinds that would typically cool merger activity.

For venture capital-backed startups, positioning for acquisition has become a primary exit strategy. Strategic acquisitions consistently account for more than two-thirds of all exits for VC-backed companies in the U.S., according to PitchBook data. This dynamic creates a robust pipeline of acquisition targets as startups optimize for features, technologies, or market positions that make them attractive to larger acquirers.

Private equity firms have also capitalized on attractive software-as-a-service business models, which combine relatively low startup costs with the potential for large, recurring revenue streams. The fragmented nature of the software market — created by a decade of heavy venture capital investment — has proven particularly ripe for PE roll-up strategies, where firms acquire multiple smaller companies in adjacent segments and consolidate them into larger platforms.

Cybersecurity represents another key focus as threats become more sophisticated through AI enhancement. The concentration of cybersecurity companies near Washington, D.C., and Virginia reflects the sector’s close relationship with federal agencies and defense contractors, creating a distinct geographic hub for M&A activity in this subsector.

Yet this wave of innovation also brings intensifying challenges. Companies face fierce competition from the accelerating pace of innovation, market saturation, rising customer expectations, and pricing pressures. Regulatory scrutiny continues mounting around data privacy protection, antitrust enforcement, and misinformation control. Supply chain disruptions, geopolitical conflicts, and component shortages add further complexity.

Subsector Dynamics and Regional Patterns

The information technology subsector remains the dominant force in tech M&A, accounting for more than 80 percent of both total deal counts and transaction value in 2024. Software’s relatively low startup costs and potential for massive user bases have created a fragmented market that naturally attracts both strategic acquirers and private equity consolidators.

Within IT, private equity firms demonstrated particular appetite for continued investment, with PE deal value in the subsector showing 24.7 percent annual growth compared with declines of 24.1 percent for telecommunications and 5.2 percent for electronics manufacturing. This growth came despite broader market challenges, signaling PE confidence in software and IT services business models.

Telecommunications provided a notable exception to subsector trends, with deal value surging 130 percent year over year. This dramatic increase was driven largely by EchoStar’s $26 billion acquisition of DISH in January 2024, highlighting how a single megadeal can significantly impact subsector statistics. The transaction reflects accelerating consolidation as legacy telecommunications infrastructure adapts to demands like 5G deployment and nationwide fiber expansion.

Geographically, technology M&A activity shows more dispersion than other sectors like life sciences, though clear regional patterns emerge. The West Coast accounts for approximately 25 percent of annual deal volume, maintaining its position as the industry’s primary hub. The Mid-Atlantic region follows at roughly 20 percent, supported by New York’s status as a natural home for tech firms seeking access to capital markets and networks, as well as the Washington, D.C.-Virginia corridor’s appeal to cybersecurity companies requiring proximity to federal agencies.

New England and the Great Lakes regions demonstrated particular strength in 2024, posting double-digit deal count growth supported by strong graduate talent pipelines from prominent research institutions. The venture capital presence in these regions — with Connecticut home to 213 VC firms and Minnesota hosting 114 — creates robust ecosystems that naturally develop future M&A targets as portfolio companies mature.

Private Equity’s Resurgence

After skyrocketing in 2021 and 2022 with more than 2,000 deals closing for over $450 billion each year, private equity activity in technology pulled back sharply in 2023 as rising interest rates and weakening macroeconomic conditions triggered deal drought. Activity rebounded in 2024, with deal value increasing 14.5 percent to $244.1 billion and deal count rising 1 percent to 1,789 transactions.

More significantly, the median PE deal size rose by nearly 50 percent in 2024, signaling a return of large-scale transactions. PE firms take companies private to gain full control of undervalued or underperforming public businesses, using complete ownership to drive operational improvements and strategic repositioning. While leading tech stocks have surged in recent years, uneven gains and recent market turbulence have strengthened the case for taking certain companies private.

Squarespace’s $7.5 billion buyout in October 2024 exemplifies this dynamic, demonstrating that PE firms can establish control even after companies complete initial public offerings. Such deals remain less common than they were in 2021-2022 but continue playing a key role in the M&A landscape.

Private equity roll-ups — where firms acquire multiple smaller companies in the same or adjacent industries and consolidate them into larger entities — represent a common strategy in technology’s fragmented software markets. These consolidations can generate significant value through economies of scale, cross-selling opportunities, and operational efficiencies that individual companies struggle to achieve independently.

Integration Challenges and Workforce Impact

While 88 percent of technology risk management professionals surveyed by Travelers reported that M&A’s overall impact has been positive, the path from deal announcement to successful integration proves consistently challenging. Cultural differences and difficulties merging software, databases, and IT platforms tied as the top future concerns, each cited by 24 percent of respondents. Operational disruptions worried 16 percent, financial strain concerned 14 percent, and talent loss ranked among top risks at 11 percent.

The human cost of integration cannot be understated. Among companies completing M&A transactions in the past five years, 73 percent experienced employee resignations, 77 percent saw leadership changes, and 66 percent reported that individual roles changed significantly. More than half (56 percent) required employees to relocate, and 39 percent conducted layoffs. These disruptions help explain why nearly three-quarters of survey respondents (73 percent) now report to a new manager following their company’s M&A activity.

Technology integration presents unique challenges in tech sector M&A. As one owner of a company with 50-249 employees observed, “Data breaches are more likely to occur during system integration.” A vice president at a larger firm (250-499 employees) noted that “it can be difficult and resource-intensive to integrate various IT platforms, systems and technologies.” These technical hurdles often take longer than anticipated, delaying the realization of expected synergies that justified acquisition premiums.

A risk manager at a company with 500-999 employees highlighted another common oversight: “Difficulty in merging IT systems and processes could result in inefficiencies, data breaches or loss of critical information.” The cybersecurity implications of merging disparate technology stacks demand careful attention, as temporary vulnerabilities during integration can create openings for sophisticated attackers.

Financial surprises also emerge frequently. A controller at a company with 500-999 employees pointed to “costs associated with restructuring, possible redundancies and the integration process that are hidden or underestimated.” These unexpected expenses can significantly impact projected returns on investment.

Despite these challenges, companies generally view M&A as an opportunity to strengthen operations. Nearly all technology companies (91 percent) changed risk management practices following transactions, with 94 percent reporting their practices became somewhat or much stronger. The most common changes included implementing new risk management and mitigation practices (49 percent), changing or adding physical safety practices (44 percent), engaging with new suppliers (43 percent), and changing or adding technology safety practices (42 percent).

Strategic Outlook

The trend toward larger, more strategic acquisitions shows no signs of reversing. The AI revolution continues accelerating, with companies racing to acquire capabilities, talent, and infrastructure needed to compete in an AI-driven future. Semiconductor demand will likely remain elevated as data centers expand to support AI workloads. Cybersecurity acquisitions should continue as threats grow more sophisticated.

Emerging regulatory themes will shape deal structures and due diligence processes. Companies must navigate new regulatory treatment of AI technologies, potential litigation targeting social media platforms for allegedly addictive design, and unfolding trade conflicts that may impact international customer bases and supply chains. Before closing transactions, companies must rigorously evaluate financial exposures, regulatory compliance across jurisdictions, cybersecurity vulnerabilities, and realistic integration timelines.

Intellectual property documentation will remain critical, as one risk manager from a company with 250-499 employees learned: “Intellectual property disputes may arise from poorly documented patents.” In technology acquisitions where IP often represents the primary asset, thorough due diligence on patent portfolios, licensing agreements, and open-source dependencies is essential.

The scale and complexity of technology M&A transactions emphasize the need for comprehensive risk assessment. As high-value acquisitions, especially for software and semiconductors, become more common, companies must adopt strong risk management strategies supported by appropriate insurance solutions to position themselves for long-term success.

Technology M&A remains a central growth strategy despite recent market fluctuations and integration challenges. Companies that can successfully execute large-scale acquisitions while managing cultural integration, technology platform consolidation, and workforce transitions will secure meaningful competitive advantages. Those that underestimate these challenges risk squandering the strategic value that justified paying premium acquisition prices. In an industry where innovation cycles accelerate and competitive advantages erode quickly, the ability to successfully integrate acquisitions may prove as important as identifying the right targets in the first place.

To access the full 2025 Special Report on technology M&A from Travelers, click here. &