The State of the Software M&A Market in 2025 (So Far)
We've been talking with bankers and companies across the space, and here's what we're seeing in the market right now. Fair warning—our commentary combines conversations and various research reports, so the numbers may not all match up perfectly, but the directions and trends definitely align.
The Big Picture
Software M&A is in a genuinely weird place right now. AI is absolutely crushing it on the venture side—$176 billion flowed into the sector in 2024 alone¹—but traditional M&A activity is still way down from pre-COVID levels. It's like the market is simultaneously on fire and stuck in the freezer.
Here's the Story So Far
Deal Activity: Looking at the first half of 2024 versus 2025, we're seeing fewer deals (down 11%) but they're getting bigger (values up 15%). It's a clear shift toward more strategic, higher-value transactions.² Annualizing Q1'25 results, Tech M&A value for 2025 is estimated to come in around $230B, down roughly 18% from 2024's tech M&A deal value.³
SaaS Is Still King: SaaS companies grabbed 61% of all software deals in 2024, with 2,107 transactions making it the second-biggest year ever for SaaS deal volume.⁴ That's nearly double what we saw a decade ago—subscription models have basically taken over. I'm curious to see the impact of AI on this over the next 12-24 months.
The Valuation Game Has Changed: Remember when you could just show crazy growth numbers and get premium multiples? Those days are over. The market now wants to see the "Rule of 40"—growth plus profitability combined. If you're hitting 40%+ on that metric, you'll get premium valuations. Below Rule of 10%? Good luck getting even 1x revenue.
What's Actually Driving Valuations Now
The whole playbook has flipped. It's not just about growth anymore—companies that balance both growth and profitability are winning big, while pure growth plays are struggling.
A few things are dominating every valuation conversation:
EBITDA margins matter as much as growth now
Fed policy: Those expected 2-3 rate cuts should help valuations (though I'm not sure rate cuts will happen...)
AI risk: Buyers are genuinely worried about investing in companies and markets that could get disrupted seemingly overnight
The Buyer Side is Messy
PE Firms Are Stuck: Private equity drove 51% of deals in 2024, but they're having a rough 2025. April was brutal—deal values dropped 24% from the Q1 average and deal count fell 22%.⁵ The tariff uncertainty that hit in early April basically shut down the IPO market and spooked everyone.
Dry Powder Everywhere, But Nobody's Spending: There's $1.2 trillion in buyout capital sitting on the sidelines, and about 25% of it has been there for four years or more.⁷ The urgency to deploy is real, but so is the hesitation. Fun fact: no buyout fund larger than $5 billion closed in Q1 2025—first time that's happened in a decade.⁷
The Liquidity Crunch is Real: PE funds from 2018 are only distributing 0.6x versus the normal 0.8x benchmark.⁷ LPs are getting frustrated and demanding full exits instead of partial ones—over 60% would rather take a lower valuation than wait for another dividend recap.⁷
The Fundraising Math is Brutal: Over 18,000 private capital funds are out there trying to raise $3.3 trillion. That's basically $3 of demand for every $1 of supply.⁷ Most fundraising timelines are now pushed into 2026 or beyond.
Strategic Buyers Are Playing it Safe: Public companies are being super cautious because of:
Fear of overpaying in this uncertain market
Genuine concerns about AI disruption
They'd rather build AI capabilities than buy them
All the trade and geopolitical noise affecting long-term planning
Why You Should Act Now (Not Later)
Look, everyone's waiting for the "perfect" conditions that probably aren't coming. Smart players are using this time to position themselves for when things turn around.
If You're Selling: The market isn't getting easier. With $1.2 trillion in dry powder and economic conditions potentially improving, good assets at reasonable prices will find homes. But you need to show solid unit economics and have a real AI strategy.
If You're Buying: Focus on companies with strong fundamentals. Look for:
Revenue growth plus margin expansion (that Rule of 40 again)
Sticky, recurring revenue
Vertical SaaS in fragmented markets
AI strategies that actually make sense and add value
Bottom Line
The software M&A market is splitting into two camps. Premium companies with strong fundamentals and smart AI integration will get premium prices. Everyone else is going to face some harsh realities. The winners will be the ones who make moves while others are sitting on the sidelines waiting for perfect conditions.
There's actually some optimism building, especially in the Americas where M&A sentiment has jumped significantly in early 2025.⁶ But success is going to require discipline, strategic thinking, and patience as we all work through this market.
————————————————————
Sources:
Internal market data and industry reports
PwC Global M&A trends in technology, media and telecommunications: 2025 mid-year outlook
AGC Partners Tech Capital Markets Update May 2025
Internal SaaS market analysis
Bain & Company Private Equity Midyear Report 2025
BCG M&A Outlook 2025: Expectations Are High
Bain & Company Private Equity Midyear Report 2025
