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AI's primary impact on M&A isn't the direct acquisition of technology. Instead, the AI revolution reinforces the strategic belief that massive corporate scale is essential for future competitiveness. This belief fuels the appetite for large, strategic M&A to consolidate and grow.
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Because boards lack deep expertise in AI's seismic impact, they are pursuing scale-driven M&A. The goal is to accumulate diverse assets ('cards in a deck') to maintain flexibility and strategic options in an unpredictable, AI-driven future, rather than making specific bets on the technology itself.
Current M&A activity related to AI isn't targeting AI model creators. Instead, capital is flowing into consolidating the 'picks and shovels' of the AI ecosystem. This includes derivative plays like data centers, semiconductors, software, and even power suppliers, which are seen as more tangible long-term assets.
The most successful organizations will view AI not as a tool for cost-cutting (doing the same with less) but as an expansionary technology. This mindset focuses on using AI to create new products, enter new markets, and dramatically increase scope, rather than just incremental efficiency gains.
Madrona Ventures anticipates a rise in private-to-private mergers as a key trend for 2026. With questions about the long-term durability of even fast-growing private AI companies, consolidation is seen as a primary way for winners to emerge and build more defensible businesses in a volatile market.
While public markets reacted negatively to ServiceNow's M&A activity, the strategy is a deliberate offensive move to lead in AI. By acquiring companies in high-growth areas like AI-powered cybersecurity, ServiceNow is expanding its market and solidifying its position as an "AI have" rather than signaling weakness.
The success of an AI roll-up hinges on effective technology implementation. Therefore, the primary filter for acquiring a company is not just its financials but whether its leadership and culture are genuinely eager to adopt AI and transform their operations. This cultural fit is non-negotiable.
The era of scaling through low-ACV, product-led growth is fading. Today's rapid growth stories, especially in the capital-intensive AI space, are driven by massive, founder-led strategic deals for infrastructure and partnerships, reminiscent of the pre-dot-com internet era.
Expect more acquisitions of VC firms by large asset managers. The strategic driver isn't just AUM, but the ability to apply cutting-edge AI and tech from the VC portfolio to accelerate growth and EBITDA in their traditional private equity-owned industrial and consumer companies.
Companies are reporting AI tool adoption to their boards not as a cost center, but as a strategic necessity. The fear of being outcompeted drives a desire to significantly increase, even triple, their spending on these tools, viewing current investment as insufficient.
Enterprise surveys show a major shift: CEOs are taking direct control of AI initiatives from CIOs. They are increasingly willing to make substantial, long-term investments in AI—even if a recession hits or if tangible ROI isn't immediately measurable—viewing it as an existential imperative for survival and growth.