Dealmaking in the Technology Sector: Outlook for 2025

As we move into 2025, the technology sector's private equity (PE) deal landscape holds both promise and uncertainty. Opportunities abound, especially within sectors poised for growth, such as fintech, health tech, and other digital transformation enablers. However, potential investors must exercise caution and stay informed about regulatory changes and market indicators that could impact the technology industry. 

Moreover, with ongoing geopolitical tensions impacting global supply chains, private equity firms may need to reassess the risks associated with their portfolios. Firms that can adeptly pivot, adapt their strategies, and focus on long-term value creation rather than short-term gains will likely emerge stronger in an evolving market. 

The PE landscape in the technology sector reveals a dynamic interplay of market forces, regulatory shifts, and evolving consumer trends. The end of 2024 showcased significant deal-making activity and set the stage for strategic maneuvers in 2025 and beyond. The ongoing ramifications of the 2024 elections further complicate the scenario, introducing new dynamics that could influence investment trajectories. 

A Surge in Private Equity Activity 

The technology sector has always been a prime target for PE firms. As we saw in Q4 2024, the heightened interest can be attributed to various factors, including the rapid acceleration of digital transformation across industries, increasing reliance on technology in everyday life, and the emergence of next-generation technologies such as artificial intelligence (AI), machine learning (ML),  blockchain and cryptocurrency. 

Recent Notable PE Transactions 

Dealmaking activity for software services has provided a more stable and secure way for PE to invest in the technology sector. In Q4 2024, the technology PE deal value increased 20.7% YoY, and deal count rose 1.8% YoY, translating to roughly 1,413 deals with a value of $192.6 billion. Software deals accounted for most of the growth, as they typically provide consistent cash flows, low operating costs, and are not severely impacted by supply chain issues.  Additionally, as software companies adapt AI, software investments introduce AI to private equity portfolios in what can be seen as a less volatile investment. 

A few notable private equity technology investments in Q4 2024 included:  

• In December of 2024, it was announced that Blackstone and TCV increased their investment in RELEX Solutions. RELEX Solutions provides one data source and visibility to help retailers, wholesalers, and consumer packaged goods manufacturers align and optimize demand, merchandise, supply chain, and operations planning across the end-to-end value chain.  
• Thoma Bravo, a PE firm focused on investments in software, completed the all-cash acquisition of Darktrace, a global cybersecurity company. Darktrace was valued at $5.3 billion, and the deal was announced in October 2024.  
• In October 2024, DTiQ secured a $145  growth investment from Bain Capital. DTiQ provides SaaS-based video, analytics, and optimization solutions for restaurants, convenience stores, and specialty retail operators.  

Over the next few quarters, investors will watch for the new administration’s impact on the economy and general economic conditions. Contingent on this, PE may increase their portfolio exposure to different technology companies. As AI expands, there will be a demand for the supporting infrastructure (e.g., data centers). At the end of 2024, PitchBook estimates there is over $1 trillion in dry powder. The need to improve the efficiency and expansion of data centers could provide an investment opportunity for the “dry powder.” In fact, you are beginning to see major financial institutions providing significant construction loans for the development of large data centers across the US. 

Market Conditions and Trends 

The possibility of future interest rate increases by the FED, an evolving regulatory landscape, and the lingering effects of global supply chain disruptions have presented hurdles for many PE firms. However, PE's flexibility, often bolstered by dry powder and the capacity for relatively long-term investments, has allowed many firms to navigate these conditions successfully.  

Investor interest also pivoted towards sustainable technology, with a visible uptick in transactions focused on green technology initiatives. As environmental, social, and governance (ESG) considerations gain traction among consumers, PE firms increasingly see value in investments that align with sustainability goals. 

Post-Election Implications and Regulatory Changes 

The 2024 U.S. elections added a layer of complexity to the market, influencing the PE landscape in several key ways. 

1. Regulatory Environment: The election outcomes ushered in a new administration with a renewed focus on antitrust scrutiny, especially concerning big technology. PE firms with technology investments might need to navigate these reforms carefully, as heightened regulatory scrutiny could impact the valuation and viability of certain companies, particularly those with high market concentration.
2. Tax Policies: Changes in tax policies could also affect deal structures. Depending on the proposed measures from the new administration regarding capital gains taxes and corporate taxation, PE firms might need to adapt their strategies, potentially leading to greater emphasis on tax-efficient investments.
3. Infrastructure and Technology Investment: The election results indicated a bilateral push for increased infrastructure spending, including technology enhancements across government services. As public-private partnerships become more prominent, this trend could present new opportunities for PE in sectors such as cloud computing, cybersecurity, and data analytics.

 The end of 2024  saw robust deal activity that is expected to continue into 2025. Q4 2024 showcased an impressive wave of private equity activity within the technology sector, driven by innovation and growth potential. As legislative changes unfold in the wake of the elections, the ability of firms to navigate the complexities of this environment will be critical in shaping the future of private equity in technology. 

As the private equity landscape in the technology sector continues to evolve, staying informed and adaptable is crucial. Continue to follow  our newsletter for the latest insights, trends, and expert analyses to help you navigate the complexities of the market and make informed decisions on the state of the market.