Private equity investment in AI and ML soared to an all-time high, reaching $12.3 billion in 2024, up from $5.1 billion in 2023, in the course of just one year, according to PitchBook. Even if you don’t consider Thoma Bravo’s $5.4 billion acquisition of the cybersecurity firm Darktrace, you’re still left with $6.8 billion, a record in its own right.
And it’s not slowing down. Q1 2025 is already over $3.0 billion across 26 deals with almost three weeks to go in the quarter. The deal count? Also a record last year: 128 made transactions, compared with 86 the previous year.
But here’s the twist: median deal size in AI and ML skyrocketed from $3.2 million in 2018 to more than $64.2 million this year. This is no longer a playground for venture capital. These are mature, scaled companies, many already profitable, all with sticky revenue, proprietary models, and real-world applications.¹
Private equity is no longer just a bystander to AI. It’s writing checks, big ones.
From Metaverse applications to cloud-based pricing algorithms, the technology is remaking the targets PE firms pursue, how they underwrite risk and where they find growth. Of course, the smartest investors are not just looking for multiples. They’re constructing playbooks for value creation in AI-native companies, those where data, automation and machine learning are integrated in the core business model.
This report highlights five tactical takeaways from that transition. As validated by sound data, recent deal activity, and the strategic actions underway at leading firms, these are the new rules of engagement for any PE player seeking to drive sense, not just profit, in the era of intelligent capital.
1. AI Is No Longer a Bet—It’s the Engine
Artificial intelligence has made the leap from speculative edge to operational core. In the first half of 2023, over 57% of all public-to-private tech deals involved a private equity sponsor, and AI was the central thesis in most of them. While AI once floated at the periphery of diligence decks, it’s now driving entire investment committees.²
AI has become the driver behind private equity deals, rather than merely a lens through which they are viewed. With median AI and ML deal sizes in Europe above $64.2 million this year private equity firms are wading in. They’re going after mature, revenue-generating platforms with embedded machine learning capabilities, a set of data assets and real-world traction, deals that clear not only the risk bar, but reimagine the value creation playbook from whole cloth.
Case in point: Cisco’s $28 billion buyout of Splunk was less about software licenses and more about capturing AI-powered cyber security. All Evernorth needed to see from Bright MD was automated triage tools that cut consult time by 30%, a new way of unlocking throughput and bringing down costs in care pathways.³
Strategic Playbook:
- Acquire AI-native assets: Stickier, scalable, and harder to replicate are platforms that natively have ML capabilities or proprietary data layers.
- Embed AI across operations post-close: From fraud detection to claims processing, internal automation creates real margin lift.
2. Digital Modernization Is the New Margin Arbitrage
Margin expansion today isn’t coming from traditional cost-cutting. It’s being engineered through strategic digital modernization, early, intentional and measurable.
This will require private equity professionals to move away from managing headcount decreases and SG&A compression to strategically investing in infrastructure, automation, and cloud systems. Post-acquisition digital transformation can boost operating margins especially when started within the first 12 to 18 months of ownership.
Case in Point: After acquiring Nuvei, Advent processed over $200 billion in annual payments with an underwriting process that utilizes automation along a cloud-native architecture that is scalable. In turn, Bulloch Technologies cut billing errors by 40% through the modernization of its retail point-of-sale systems, an operational fix that enabled direct, trackable margin lift in the process.⁴
Strategic Playbook:
- Identify digital gaps: Legacy billing, manual onboarding or siloed data, in tech stack audit before a deal is signed.
- CapEx with laser focus: Invest only in UX revamps, cloud migrations, or workflow automation that moves the margin pointer.
3. Specialized AI Verticals Are Delivering Outsized Returns
AI is enabling specialized, defensible sectors with strong demand and limited supply. Consider telehealth, energy optimization, logistics automation, regulatory tech. Not only do these verticals have real-world use cases, they also remain insulated from competition.
Case in point: The $15.3 billion acquisition of DB Schenker by DSV has secured its place as the world’s number one freight forwarder. The deal will greatly enhance DSV’s European ground and rail logistics network and aligns with wider trends in the logistics sector toward integrated transport networks and environmentally sustainable operations.⁵
Strategic Playbook:
- Find Undercapitalized Niches: Look for verticals where AI is persuasively ROI-oriented but investor saturation is low.
- Get In Early, Then Scale: Use the platform deals to get in, then bolt-on adjacents to build defensibility.
4. Due Diligence Is Getting Smarter—And Deeper
Usage-based revenue and subscription models require smarter underwriting.
Top performers aren’t asking, “What’s the ARR?” And they’re asking, “How predictable is it?” That means net revenue retention, churn cohorts, engagement frequency, and upsell conversion paths are newly front and center in the diligence process.
Case in point: Ansarada was acquired by Datasite in February 2024 for around AUD 240 million. The transaction bolsters Datasite’s offerings in capital markets technology, complementing its range of tools for preparing deals, managing data and automating workflows.⁶
Strategic Playbook:
- Get Off the Surface Level Metrics: Deep dive into platform analytics; product adoption, daily active users, churn flags
- Don’t Assume: Model Revenue Expansion Scenarios: Use data to inform how and where, revenue growth will be achieved.
5. Programmatic M&A Beats the Big-Bang Bet
The top-performing PE firms aren’t batting huge. They’re stitching value together.
While headline-grabbing mega deals dominate, “string of pearls” strategies; acquiring several, complementary companies over time, have actually proven to be more effective, driving 2–3% higher shareholder returns, McKinsey reports.
Case in point: Hexagon: 170+ deals→ sprawling, high-margin portfolio across software & sensor markets.⁷
Strategic Playbook:
- Decide on an Acquisitional Roadmap: Is this company aligned with your long term theses be it tech consolidation in the space, regional expansion or vertical layering?
- Trim to win: Do not hesitate to divest legacy assets to reinvest in future-ready ones.
Conclusion:
No more early-stage experiments with AI and machine learning—they are attracting big checks, generating scaled revenues and increasingly demanding real diligence. As deal sizes rise and competition heats up, private equity firms are looking for more than just interest — they’re looking for conviction, operational discipline and a thesis. The companies that react to that now won’t just be better companies. They’ll build stronger ones.
References:
1. https://shorturl.at/a2LEs
2. https://shorturl.at/WFGH9
3. https://shorturl.at/qoe3u
4. https://shorturl.at/HNZSd
5. https://tinyurl.com/4jxpvew3
6. https://tinyurl.com/35u7pnzu
7. https://tinyurl.com/ujjzyu8p
