AI and Cloud Migration: The Double Whammy Fuelling M&A in the IT Services Sector

The newly published IT & Business Services M&A Report from Hampleton Partners reveals an uptick in deal activity and valuations for the sector, singling out cloud computing as a “significant driver of market growth, with businesses and public sector organisations seeking out cloud migration and digital transformation services to modernize their IT infrastructures and implement mission-critical software”.

The significance of cloud migration as a momentum generator has been underscored by recent IT sector studies showing that the percentage of IT infrastructure hosted “on-premises” by businesses and other organisations is set to shrink as they look to save on resources by outsourcing to hyperscalers – the large cloud providers which take on the burden of IT processing and storage tasks.

This pattern is being seen on a global scale, with global cloud infrastructure spending in 2024 seeing a 20% rise compared to the previous year. As well as the drive to boost efficiencies and cutting costs, there’s also another big factor accelerating cloud adoption: the expansion of AI usage among organisations.

As businesses and public bodies increasingly rely on AI to automate workflows, analyse data, and increase productivity, so too are their IT processing requirements becoming ever-more complex, driving demand for scalable infrastructure solutions which are fine-tuned for the challenges of the AI age.

While the hyperscaler space is dominated by the “big three” of Amazon Web Services, Microsoft Azure and Google Cloud Platform, the sheer demand for cloud migration solutions, together with the imperative among businesses to stay competitive through the deployment of AI, has opened up something of a gold rush involving smaller cloud services companies which are focused on the execution of machine learning models and other specialisms such as IT infrastructure monitoring.

Here are some that have been on the radar of investors.

Back in 2021, CoreWeave’s co-founder Michael Intrator outlined the new and lucrative niche that was opening up for so-called “AI hyperscalers”, writing of how his company was “getting inundated with introductions to businesses dependent upon GPU acceleration with a common pain point: legacy cloud providers make it extremely difficult to scale because they offer a limited variety of compute options at monopolistic prices.”

Before Intrator and his fellow founders recognised this opportunity, they’d actually been focused on cryptocurrency, with CoreWeave starting life in 2017 as a crypto mining firm. It undertook one of the most successful pivots in recent tech history when it bought up industrial numbers of NVIDIA chips to provide a cloud-based GPU infrastructure for its clients’ AI workloads.

This move led to an immense escalation in revenues, leading the company to securing a mammoth USD 1.1b Series C funding round last year. All eyes are now on how CoreWeave will perform after its imminent IPO, with many commentators sounding notes of caution around CoreWeave’s disproportionate dependence on Microsoft as a client, with the tech giant providing more than 60% of CoreWeave’s revenue. It will be interesting to see how things unfold, and whether CoreWeave will be able to successfully diversify its revenue sources and maintain its status as the emblematic “AI hyperscaler”.

Another hugely significant player offering AI-focused, scalable GPU services is Florida-based Vultr, which was founded in 2014 and was self-funded until last year, when it secured USD 333m in investment. Like CoreWeave, it pitches itself as a more cost-effective and AI-specialised alternative to the hyperscaler giants, and is using this windfall to expand its data centres.

It’s also enhancing its position in the industry by collaborating with IT networking giant Juniper Networks, data centre solutions provider Broadcom, and chipmaker AMD, to build a major new GPU supercomputer cluster in Illinois. JJ Kardwell, CEO of Vultr, has said this cluster will allow clients to “harness the full potential of accelerated computing with the highest levels of flexibility, scalability, interoperability, and security.”

Less well known than CoreWeave and Vultr, but also making waves in this space, is DataCrunch. Founded in Finland in 2020, the company closed a EUR 12m seed funding round last year – a windfall it is using to enhance its computing capacity and propel it along its journey to becoming “Europe’s first AI hyperscaler”.

Like CoreWeave’s Michael Intrator, DateCrunch CEO Ruben Bryon has framed his company as a plucky competitor to the big hyperscaler behemoths straddling the industry, saying that “DataCrunch was born out of frustration with the existing hyperscaler offerings. AI companies deserve better access to computing without the complexity and high costs that have become the industry norm.”

The company has also distinguished itself from rivals in this burgeoning field by emphasising its green credentials, with its data centres in Finland and Iceland being powered by renewable energy grids. The company’s eco-conscious imperative means that, according to Bryon, DataCrunch will only expand locations if there is “a similar advantage in terms of carbon footprint of our operations.”

With the cloud networks utilised by businesses becoming increasingly expansive and intricate, the question of how best to maintain and track such systems will be on the minds of senior stakeholders. German firm Checkmk is catering to such requirements with its IT infrastructure monitoring suite, which allows clients to keep tabs on their applications, servers and networks in the cloud.

The centrally-managed SaaS platform has recently caught the eye of software investment specialist PSG Equity, which in February announced a strategic partnership with Checkmk. The aim of the deal is to turn Checkmk, which has been around since 2007, into a “global powerhouse in hybrid full-stack monitoring” – a move which also highlights the opportunities for software companies whose solutions support and complement cloud networks.

These companies are just the tip of the iceberg when it comes to cloud services disruptors, and here at Hampleton Partners we’re keeping a close eye on how the latest infrastructure innovations are impacting M&A in the IT & Business Services sector. If you’re a founder or senior decision maker who’d like to talk about the next steps for your business, say hello to our MD Konstantin Kastius to see what we can do for you.