Driving Tech Growth Amid Regulatory and Antitrust Scrutiny

Jump to:

• Driving tech growth amid regulatory and antitrust scrutiny
• Positive tech M&A outlook
• Deal regulation front and center for strategic deal planning
• Evolving regulatory landscape
• How to navigate the risks and capitalize on the opportunities

Driving tech growth amid regulatory and antitrust scrutiny

The technology sector continues to experience huge transformation with emerging technologies and advancements in AI. Companies are making portfolio-oriented investments, through a variety of buy, build or partner approaches. However, tech companies face an increasingly complex dealmaking environment, owing to antitrust, national security, foreign investment and other deal regulation regimes around the world.

We consider the M&A outlook, analyze the evolving regulatory landscape, and lay out a roadmap for maximizing opportunities and protecting deal value.

Positive tech M&A outlook

Following a retreat in 2023, we saw tech M&A slowly coming back in 2024. US dealmaking has started relatively slowly in 2025, but we expect increasing activity, with AI investments likely to be central to much activity and President Trump’s commitment to a pro-growth agenda a key factor.

The ongoing race to develop foundation models and achieve advancements in AI has intensified further with recent Chinese AI breakthroughs. Priority areas for acquisitions include AI startups and growth companies at the forefront of what the technology can do (in areas such as agentic AI). M&A is used to quickly acquire product teams (so called acqui-hires) and IP, rather than develop in-house capability. Data storage, management and analytics, and digital infrastructure (in particular, data centers and energy solutions) will also be a focus due to the adoption of AI, which is both data driven and power demanding. Cybersecurity featured heavily for M&A dealmakers in 2024 and we expect this to continue in 2025, with AI and cloud providers continuing to invest in this area to combat growing cyber threats.

Partnerships, minority investments, licensing and supply agreements provide other routes to innovation and growth, without the costs, complexity and risks of M&A, and enable companies to hedge their bets in a dynamic tech landscape.

Pent up demand from companies and investors is likely to target strategic acquisitions along the AI value chain, aimed at growing market share and driving returns. With a positive outlook for tech M&A we anticipate an increasingly competitive dealmaking environment. 

Lawrence Lee, M&A Partner, Palo Alto

 

Deal regulation front and center for strategic deal planning

Regulatory scrutiny continues to shape the M&A environment. Heightened antitrust scrutiny has already transformed the once-familiar playing field into a maze. Dealmakers must also check whether approvals are needed under foreign investment regimes (which have proliferated and expanded to cover more transactions and industries) and under the EU Foreign Subsidies Regulation (where mandatory notification rules will apply to many transactions where the target generates significant EU turnover, not just those involving heavily subsidized buyers).

Careful planning is essential to avoid delays, blocked deals and unforeseen hurdles. It’s risky to wait for red flags from regulators before considering remedies. Concerns need to be identified early in the deal process so that the impact on overall deal success can be evaluated. Working with regulators from multiple jurisdictions can add complexity to and delay approvals, given different perspectives.

Antitrust scrutiny continues to loom large. That is especially true for tech companies that have been subjected to a "digital onslaught" in recent years where regulators around the world have experimented with new theories of harm.

But significant political changes (including on both sides of the Atlantic) are now raising interesting questions about the complementary roles of antitrust and industrial policy in driving economic growth. Could the wind be changing direction – at least for certain deals?

Sustained antitrust scrutiny requires companies to develop expertise in and a proactive approach to ensure successful deals. 

Tom Jenkins, Antitrust & Competition Partner, Brussels

 

Evolving regulatory landscape

Wider range of deals under review, delays and prohibition

The last few years have seen a steady increase in the volume and types of transactions under the antitrust microscope. Regulators cast a wide net. They continue to focus on suspected “killer acquisitions” (where revenues do not reflect the future competitive potential of a target company) but have also examined partnership deals (concerning licensing arrangements and access to key individuals) between tech companies and AI companies; and flexed powers to "call in" deals for examination - even if they were not notifiable (or previously cleared in some cases). The underlying fear is that anti-competitive deals pass under the radar.

The nature of the antitrust review is also evolving. Merger reviews tend to look beyond the status quo (evidenced by current market shares), to encompass dynamic factors (e.g. how markets are likely to evolve, future entrants, innovation etc). There is now a clear focus on AI foundation models where agencies are keen to guard against deals that would lead to high levels of concentration or foreclose access to the key inputs (data, accelerator chips, computing infrastructure, cloud capacity and technical expertise) that companies are looking to invest in. Regulators also remain worried that acquisitions of seemingly unrelated products or services, when combined, could strengthen ecosystems in a way that causes competitive harm. These issues are not confined to mature jurisdictions such as the EU and US. China, India and Brazil among others are all following suit. We also see internal documents continuing to play a key role in shaping the authorities' thinking (so internal and external counsel should play particular attention to vetting materials before they are finalized).

A change in the air?

The new US administration's stance on antitrust, particularly concerning tech deals, is complicated. There is an ongoing debate about how stringent regulations should be, especially concerning large tech companies market power. At the same time, technology plays a key role in national security and agencies know they must not stand in the way of innovation While vigorous enforcement against problematic transactions seems likely to continue, we believe that US agencies will focus on more traditional enforcement theories, focusing on effects on prices and innovation rather than labor, and be more open (than during the previous administration) to negotiating a broader range of remedies to address concerns in the form of consent orders containing divestiture commitments.

In the EU, Executive Vice President Teresa Ribero (the new Commissioner responsible for competition policy) declared that the proper enforcement of competition policy can lead to more innovation, and that EU merger control needs to evolve to capture contemporary needs and dynamics: “globalization, digitalization, sustainability, innovation and resilience”. We will watch closely to see how this plays out but expect to see some changes in policy and practice. Whether that will include a new “innovation defence” in EU merger control (as had been called for in the Draghi report) is unclear, but it seems likely that the Commission will give greater consideration to efficiency-related benefits. That could mean positive tailwinds for the right kind of tech deal.

In the UK, there are early signs that the UK Competition and Markets Authority (CMA) is retreating from its highly interventionist position in relation to merger control. In what can be described as a paradigm shift, the UK regulator cleared a deal in the telecoms sector by accepting "first-of-a-kind" set of behavioral fixes, which included a joint commitment to invest in certain infrastructure. Around the same time, it announced a review of merger remedies would take place this in early 2025 and the UK Mergers Director explained that that “just because the CMA finds concerns with a deal, that doesn't mean it can't go ahead in some form".

Following the resignation of the previous Chair of the CMA, the UK government appointed Doug Gurr, a former Big Tech executive, who has described the need for “a regulatory environment that encourages the greatest possible level of business investment, subject to respecting the absolute importance of healthy competition and strong consumer protection”. In the same article, the chair described a desire to “[encourage]…multinationals — who have a pretty much free choice to place their investments anywhere in the Emea timezone — to choose the UK”.

Therefore, it seems there is potential for a pro-competitive industrial strategy to reduce turbulence for deals seeking to promote growth. Good candidates would be deals which allow scale for investment-intensive activities. But it is too early to predict how this will play out in the UK, in particular whether some investors and investments will face an easier ride than others.

And it’s possible that, due to an injection of politics, multijurisdictional deals could experience headwinds and tailwinds in different countries as regulators take different approaches to the same facts. Global polarization and rising protectionism will also continue to escalate.

Some shifts in approaches to enforcement, following events such as the US and UK elections and changes at the European Commission, may potentially ease the path for some transactions but the position remains an evolving one. 

Mara Ghiorghies, Antitrust & Competition Partner, London

 

How to navigate the risks and capitalize on the opportunities

• Understand “deal do-ability” and move early: Businesses must build a strong understanding of antitrust and political considerations and proactively identify and assess potential antitrust risks. An early feasibility assessment is a crucial tool for efficient deal planning and strategic investment/deal decisions (where to invest/divest etc). Early engagement with regulators is often the next step, if necessary, along with a clear explanation of how proposed remedies address their concerns.
  
  
• Think globally: The increasingly globalized nature of M&A deals often requires companies to work with regulators from multiple jurisdictions to come up with a comprehensive solution for a complex transaction. This requires careful coordination and collaboration globally to ensure a successful outcome.
  
  
• Be realistic on timing: Delays from signing to closing to navigate regulatory hurdles can create significant issues for sellers and buyers alike. It is critical to adopt a realistic approach to deal timing and carefully construct deal terms that will enable the business to successfully operate over a protracted period, while maximizing deal certainty for sellers and preserving the value of the target business for buyers.
  
  
• Coordinate with the other side: Sellers coordinating with potential buyers to address anticipated concerns is critical. By collaborating on antitrust matters, buyers and sellers can preemptively address roadblocks and explore remedies. Divestments, once seen as a straightforward remedy for antitrust concerns, can face additional scrutiny and may undermine deal value, especially for companies in the tech sector looking to build capabilities across the AI value chain. Considerable work may also be needed to show that the divested businesses can truly function independently and be competitive in the market.

The key to success in the current environment lies in proactive adaptation. Companies and their advisors will need to be nimble to maximize the opportunity for favorable business outcomes. 

Brian Burke, Antitrust & Competition Partner, Washington