For M&A professionals, EU data sovereignty is no longer a regulatory background issue. It is shaping diligence scope, execution risk, and investment returns across technology‑enabled sectors.

Europe has become dependent on global technology companies for its data and digital infrastructure. EU policymakers want to change that.

As geopolitical tensions have escalated and Europe’s relationship with the US has reconfigured, the continent’s reliance on foreign companies to provide critical technology services and capability has come under scrutiny.

European cloud services infrastructure is dominated by US hyperscalers Amazon, Microsoft, and Google, who control 72% of the market, while European defense forces have come to rely on US software for everything from missile defense systems to deploying fighter jets and battleships.

European leaders have acknowledged the risk this digital dependence presents, and are taking steps to put Europe back in control of its digital future. 

What measures is the EU taking to regain digital sovereignty?

At the end of 2025, at summit in Berlin, all EU member states signed up to the Declaration for European Digital Sovereignty, calling for Europe to regulate its data and technology infrastructure and give individuals, businesses, and institutions the freedom to use technology independently, without relying in external actors.

The Declaration is the latest in a series of policy measures and initiatives to strengthen Europe’s digital independence. Not-for-profit Gaia-X is building secure cloud infrastructure that European companies can use to share data; the European Processor Initiative (EPI) has been set up to support investment in hardware to power scale computing and high-performance big data applications; and the AI Act has been passed to set standards and guardrails for AI in Europe. 

How does digital sovereignty impact dealmaking?

The priority the EU is placing on digital sovereignty has implications for M&A processes. Digital sovereignty has moved beyond a technical, compliance-driven exercise into a crucial gating question for dealmakers when conducting due diligence.

In December last year, for example, European MEPs and the European Council announced a provisional agreement to enhance rules for screening foreign direct investment (FDI) in sensitive sectors including AI, 5G, and semiconductors.

Digital sovereignty will demand closer review of where target company data is held, and whether a company is exposed to potentially conflicting legislation, such as the US CLOUD Act, which allows the US government to demand data from computing companies when investigating serious crimes. This could lead to scenarios where a cloud service provider with US links may be obliged to share the data of European clients with US authorities, potentially bumping up against European data sovereignty obligations.

How will data sovereignty influence deal strategy and capital allocation?

EU digital sovereignty will also shape how dealmakers build deal rationales and deploy capital.

Sovereign cloud services providers, who locate services in the EU and restrict data access outside of Europe, for example, have become premium investment targets, as uptake from European customers increases. In 2023 and 2024, around 30% of European organizations used sovereign cloud servers, according to an IDC survey. The figure climbed to 40% in 2025, with a further 31% of survey participants signalling plans to make use of sovereign cloud options in the future.

The EU’s CHIPS Act, meanwhile, is boosting opportunities to invest in European semiconductor production capacity and increase Europe’s 10% share of global manufacturing capacity in order to mitigate supply chain risk.

Separately, the UK government has established the Sovereign AI Unit, which has £500 million to invest in UK-based AI “national champions”, while the French government has been a cornerstone investor in home grown large language model (LLM) AI company Mistral, which is now valued at €11.7 billion after securing €1.7 billion in a recent funding round.

What does this mean for due diligence?

European data sovereignty may introduce new layers of due diligence complexity and risk for dealmakers to work through when assessing deal targets, but it will also open up compelling M&A opportunities for dealmakers who grasp data sovereignty’s strategic importance.

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