This is Allens

Rapid digitalisation and the associated demand for computing power has prompted a rush of investment into the infrastructure that underpins the digital economy. Think data storage and the movement of data through fibre, fixed-line and subsea cables. Investment in these assets has been one of the big M&A stories of 2024.

Looking ahead, I think we'll see investment activity move beyond the current wave of digital infrastructure assets to a new class of digital asset. Investors seeking long-term, secure returns may begin to look to critical software and embedded cloud-based providers for similar investment opportunities. This will particularly be the case for assets that share the attributes of now-traditional digi infra assets, such as consistent, predictable cash flows and sticky long-term contracts.

Coupled with the increase in M&A activity in this space is a corresponding increase in interest from regulators. It is increasingly common for multiple different regulators to take an interest in digital infrastructure, particularly critical infrastructure assets. For a data centre acquisition, regulators are particularly interested in the data held within those centres and the cybersecurity posture that flows from that.

Investment activity will move to new classes of digital assets like critical software.

Our clients need to be across numerous different regulatory obligations, in addition to regulatory reform, but they also need to know how to interact with each regulator and how they interrelate. That's a big ask.

The rise of AI has accelerated these trends. 2024 brought one of the first major venture-backed deals in the Australian market for a pure generative AI provider—Canva's acquisition of Leonardo AI—but it will by no means be the last.

AI governance presents major challenges with which our clients are grappling on a day-to-day basis. AI development, deployment and investment present a host of issues, from privacy and cybersecurity to confidentiality, data usage rights, IP ownership, and the retention and destruction of data.

Significant change is ahead for AI regulation, with the release of the Australian Government's proposal for the introduction of mandatory guardrails for AI in high-risk settings. There is anticipation as to how these reforms will be implemented—we might see amendments to existing regulatory frameworks, or we might see new legislation, perhaps in the form of an Australian AI Act.

Regulatory reform is the flavour of the moment—a number of key privacy and cyber Bills passed at the tail end of 2024—but many of the most significant anticipated changes have been left for future tranches, leading to continued uncertainty for businesses awaiting further clarity.

Technology continues to propel rapid change for our clients in all industries. They're focused on implementing and investing in new technologies, as well as looking ahead to what's next and how their business will change. It's profoundly exciting to be working alongside our clients as they navigate the changes and embrace opportunities.