In some ways the current AI arms race and digital infrastructure revolution are both a sprint and a marathon.
Investors are in a sprint to acquire or create hyperscaling data centers. They’re acquiring targets from Miami to Maine, from San Diego to Seattle and everywhere in between, meeting price tags in the tens of billions just to stay in the race.
But there’s also a longer play going on — a marathon, if you will — one playing out in the middle market. The targets there are the specialty products, the quality skillsets and the supply chain staples required to keep slick, sensitive computers running 24/7 365.
Thomas Laughlin is a founding partner of the Dallas office of Kirkland & Ellis and specializes in advising middle market private equity sponsors. Beyond the headline-grabbing data center deals is a growing market for the specialized products and mission-critical services that will be needed to build and maintain them.
“One trend we’re seeing is growth in service and infrastructure companies that are necessary components of the build-out and operations of data centers,” Laughlin said in an email to The Lawbook. “That growth is naturally leading to interest from sponsors focused on the middle market to invest in these service businesses.”
It’s big business, even on the M&A market side. In the past 12 months, Kirkland told The Lawbook that it has led data center M&A transactions and joint ventures valued at $164 billion, along with $67 billion in financings for data center acquisition and construction.
Data center acquisition and construction have obvious needs: real estate, equipment and dependable sources of constant electric power. Perhaps less obvious is their need for specialty products and services that respect the delicacy of hyperscale data operations. Data center cooling, for instance, requires critical controls in temperature and filtration, as well as special attention for construction and maintenance. The same specialization holds true for electrical supply, air quality, plumbing, fire prevention, water, metering and most other “ordinary” industrial needs.
Laughlin pointed to Dallas investment firm Braemont Capital’s acquisition in February 2024 of Loenbro, a Colorado provider of electrical and mechanical services to data centers and their adjacent infrastructure, as a deal indicative of the opportunities in the middle market.
“The rationale for Braemont’s investment, in addition to the company’s strong management team, was that data center demand continues to drive a strong need for high-end electrical, mechanical, and mission-critical services” like the ones Colorado-based Loenbro provides. “That rationale clearly worked out in the marketplace. Loenbro, after a lot of growth and add-on activity, signed a deal late last year with Kohlberg to take a majority stake in the business, with Braemont and management retaining significant equity,” Laughlin said.
Laughlin could have pointed to other deals he worked on: The acquisition by Trinity-Hunt Partners of HVAC provider Blackhawk Supply last July; their earlier acquisition of AI cloud services provider InfraCloud Technologies and the purchase of NexCore, an HVAC and plumbing company by a Trinity-Hunt portco. Not to mention a wide variety of upstream and midstream O&G deals aimed at securing sources for AI’s predictably insatiable energy demand.
Deals Get Smarter, Not Smaller
Laughlin said deal structuring in the middle market is getting more creative with sellers asking for performance-linked rollover while sponsors are increasingly relying on structured equity to mitigate downside risk.
Despite the headline links to megadeals, the middle market remains attractive as businesses, both for current profit and potential growth.
According to the National Center for the Middle Market at Ohio State University, privately held businesses with annual revenue between $10 million and $1 billion ended 2025 with stronger revenue growth and renewed investment appetite, despite flat employment growth, tariff uncertainty and guarded economic confidence.
Nationwide, middle market revenue rose 11.7 percent year-over-year, with 85 percent of companies growing and 53 percent achieving 10 percent-plus growth, according to the OSU center’s Year-End 2025 Middle Market Indicator report. Upper ($100 million to $1 billion in revenue) and core middle market companies ($50 million to $100 million) as defined by the report are driving gains, while lower middle market businesses ($10 million to $50 million) remain mired in slower growth. Hiring is softer, too: 56 percent increased headcount, but overall employment growth is 7.8 percent, below the 9.8 percent post‑pandemic average, and fewer firms are adding staff at double‑digit rates, according to the report.
Texas is well-positioned in many regards the digital revolution. Not only does the state have the oil and gas to generate the necessary power, but it also has a sturdy renewables infrastructure in place, a key stability factor for data center developers who increasingly hedge traditional sources of electricity with alternatives in their strategic planning. Texas has been doing solar and wind for decades now.
While some specialized midsized providers are benefitting from the AI boom, the benefit to the middle market overall is still open to question. Laughlin said some deals outside of core sectors are taking longer as due diligence “is becoming more granular, particularly for customer concentration risk, supply chain risk, and macro assumptions.” That’s a situation that benefits the resources and broad skill sets of bigger firms.
Middle Market in Texas Has Max Capital Access
With so many midsized companies actively scaling operations, they need advisory partners (legal, financial and otherwise) who can support them at every stage from early growth through expansion and acquisitions and ultimately through the sale of the business and long‑term wealth planning, according to Texas Capital Managing Director Victor Tekell, who serves as the bank’s Head of Houston Middle Market Banking.
The only full‑service financial services firm headquartered in the state, Texas Capital has a long history with family-owned businesses and middle market companies here.
Tekell told The Texas Lawbook that activity is strong across all categories right now for midsized companies in the state.
“Credit demand tied to both expansion and M&A has increased steadily since the second half of 2025, reflecting renewed confidence after an early‑year pause as companies evaluated potential election and tariff impacts,” Tekell said. “As those uncertainties eased, the back half of 2025 and early 2026 produced some of the most active periods the Texas middle market has experienced in recent years.”
He added that the demand for more advanced treasury solutions continues to rise as middle market companies “prioritize tools that streamline operations, reduce costs and improve liquidity management.”
Unlike their national counterparts, most Texas middle market companies served by Texas Capital aren’t seeing many restraints on growth, Tekell added.
“Banks have become increasingly competitive on structure and pricing, bringing down the cost of capital compared to the prior year. A deep and active private‑credit market is providing ample capacity for deals that sit outside traditional bank parameters, so capital availability remains strong,” he said.
Texas Powering AI
James Garrett, global vice chair of the M&A and Private Equity at Latham & Watkins, describes the current AI-driven market as a “super cycle” inflating valuations and complicating transaction structures. Data center deals by their nature require a tight coordination of leases, power supply, and engineering, procurement, and construction agreements, while high-level transmission infrastructure remains outside the typical middle-market scope.
Some are simply acquiring regulated utility companies. Last May, for instance, Blackstone – the largest asset manager on the planet and one of the largest owner/operators of data centers – acquired TXNM Energy for $11.5 billion. BlackRock announced its $6.5 billion acquisition of Minnesota Power. And just last week, BlackRock, EQT, the Qatar Investment Authority and the California Employees Retirement System announced their partnership to acquire AES Corporation, a major operator and developer of power generators, for $10.7 billion.
“Traditional power assets that were previously considered low growth or sleeping assets are now seeing significant activity due to significantly increased power demand primarily related to AI and data centers,” Garrett told The Lawbook.
Garrett said that includes renewables, specifically solar coupled with battery storage, are viewed as one of the quickest ways to deploy reliable off-grid power, even with the termination of tax credits and the tailwinds of some political resistance.
Garrett, for instance, recently advised Denham Capital on a new partnership, Gray Oak Power, to focus on customized power sourcing for data centers. The partnership is designed to be a specialized service that will help its clients overcome multi-grid connection delays and supply chain obstacles to timely power supply deployment, including the use of renewables.
He expects the current “super cycle” in the data center industry to continue through at least 2030 as demand for AI and the race to be a first mover shows no signs of slowing down.
Baker Botts partner Fritz Lark also sees that, expecting continued investment in data center construction due, in part, to the federal government’s framing of these projects as national security issue as well as an economic driver.
And power is the single biggest issue for the build out of the data centers, Lark said.
Allen Pusey and Jeff Schnick contributed to this report.