Merger and acquisition (M&A) activity involving data centers and digital infrastructure had a record year in 2024, and all signs point to that trend continuing in 2025. Market strategies and capital raising in this space are evolving rapidly as investors, developers, and operators seek to take advantage of the high demand. Factors that were determinative of market norms only months ago have become less relevant and new factors driving the market have emerged.
We had the opportunity to discuss evolving market factors with Brian Van der Waag, Managing Partner of Gateway Digital Infrastructure, a powered land developer and energy as a service provider to the data center industry. Our conversation with Brian emphasized that proximity to power and speed of execution have evolved into two of the primary driving factors for data center developers and investors. Brian noted: “The market is turning into a power play (pun intended). Access to dispatchable baseload power and quick execution is the name of the game.”
Because data centers require so much power, it’s desirable to have both power generation and the data center facility itself all housed on the same (very large) land parcel (or at least to have the power source very close by). Tenants require data center facilities to be up and running 100% of the time, so reliable power (including secondary and tertiary sources of power) and excess power (i.e., enough to power a small city and the ability to scale up the power) on site has become critical in determining where developers are choosing to build.
Initially, data centers were built in regional clusters (Northern Virginia, Atlanta, Dallas, Phoenix), but the lack of an excess power supply and limitations that local utilities placed on applications for power have made developers more geographically agnostic. The key for developers appears to be large parcels of land near an appropriately scaled power source. As the market continues to develop, the solution for obtaining power at that scale is likely access to dedicated “behind-the-meter” power sources.
Speed of deal execution is also a major factor. Depending on a data center’s type of turbine equipment, it can take years to get equipment up and running. With the AI boom in particular, hyperscalers need data center developers to market quickly so that the hyperscaler doesn’t get left behind in the fast-changing AI landscape. Developers are chasing available properties and paying more for them to enter the market as quickly as possible.
Because speed and access to power are driving the market over cost, the margins on the data center side can be huge compared to more traditional power purchases. Logically it follows that anyone with a power plant or manufacturing center is considering whether to repurpose their facility for a data center.
What does this mean for data center M&A in the coming months and years? We expect to see funds more closely aligning their energy, digital technology, and infrastructure capital centers in search of data center investments. In addition, we expect major players in the data center development space and even Big Tech consumers of data centers to continue to seek out vertical integration opportunities by acquiring energy companies or power plants.
Our broad team with experience across M&A, energy, real estate, technology, and regulatory practice groups is well-positioned to serves clients regarding this cross-industry convergence. To learn more about our data center capabilities, please visit our data center webpage.