What are the current M&A trends in the software industry?

What Are the Current M&A Trends in the Software Industry?

The software M&A landscape is evolving rapidly, shaped by macroeconomic headwinds, shifting buyer priorities, and the accelerating pace of innovation. For founders, CEOs, and investors, understanding these trends is more than academic — it’s essential for timing exits, structuring deals, and maximizing enterprise value.

In this article, we explore the most significant M&A trends currently shaping the software industry, with a focus on actionable insights for decision-makers navigating this dynamic environment.

1. Valuation Multiples Are Normalizing — But Not Collapsing

After a period of frothy valuations in 2020–2021, software M&A multiples have recalibrated. Public SaaS multiples, which once averaged 15–20x ARR, have compressed to a more sustainable 6–8x range, according to recent data on public SaaS multiples. Private market deals are following suit, with quality assets still commanding strong premiums — especially those with capital efficiency, low churn, and strong net revenue retention.

At iMerge, we’re seeing that buyers are more selective, but not necessarily less acquisitive. Strategic acquirers and private equity firms continue to pursue deals, albeit with more rigorous diligence and a sharper eye on profitability. For founders, this means that key SaaS metrics like gross margin, CAC payback, and Rule of 40 compliance are under closer scrutiny than ever.

2. AI and Vertical SaaS Are Driving Premium Activity

Artificial intelligence is no longer a buzzword — it’s a buy signal. Acquirers are actively seeking software companies with embedded AI capabilities, particularly in areas like cybersecurity, DevOps, and customer analytics. However, buyers are cautious about overpaying for hype. Demonstrable use cases, proprietary models, and defensible data moats are critical to justify premium valuations.

Meanwhile, vertical SaaS — software tailored to specific industries like legal, construction, or healthcare — continues to attract strong interest. These businesses often benefit from lower churn, deeper customer relationships, and higher switching costs. In a market where predictability is prized, vertical SaaS offers a compelling profile for both strategic and financial buyers.

3. Private Equity Roll-Ups Are Accelerating

Private equity firms remain among the most active buyers in the software space, particularly through buy-and-build strategies. Roll-ups in fragmented verticals — such as ERP for niche industries or compliance software — allow PE sponsors to create scale, expand margins, and drive multiple arbitrage.

For example, a $10M ARR software company with 30% EBITDA margins might sell for 6–8x EBITDA as a standalone asset. But when integrated into a larger platform, that same business could contribute to a portfolio valued at 10–12x EBITDA. This dynamic is fueling aggressive acquisition pipelines and competitive processes for founder-led businesses.

As we’ve noted in our analysis of buy-side strategies, firms like iMerge often support PE clients in identifying and vetting acquisition targets that align with these roll-up theses.

4. Deal Structures Are Becoming More Creative

In today’s environment, cash is no longer king — at least not exclusively. We’re seeing a rise in structured deals that include:

Earn-outs tied to post-close performance
Equity rollovers allowing founders to participate in future upside
Seller financing or deferred payments to bridge valuation gaps

These structures can be advantageous for both sides. Sellers can achieve higher total consideration, while buyers mitigate risk. However, they also introduce complexity. As we’ve discussed in our guide to earn-outs, it’s critical to define clear metrics, timelines, and dispute resolution mechanisms to avoid post-close friction.

5. Cross-Border M&A Is Gaining Momentum — With Caveats

Global buyers are increasingly looking beyond their home markets for software acquisitions. U.S. companies remain highly attractive due to their scale, innovation, and recurring revenue models. However, cross-border deals come with added complexity — from regulatory approvals to data sovereignty concerns.

For example, a European acquirer targeting a U.S.-based SaaS firm must navigate CFIUS review if the target handles sensitive data. Similarly, U.S. buyers acquiring in the EU must comply with GDPR and local labor laws. These hurdles are not insurmountable, but they require early planning and experienced advisors.

6. Founders Are Re-Evaluating Exit Timing

With capital markets tightening and growth equity harder to raise, many founders are reconsidering their long-term plans. Some are accelerating exit timelines to de-risk personally or capitalize on strategic interest. Others are exploring partial liquidity through recapitalizations or minority sales.

At iMerge, we often advise founders on exit planning strategy well before a formal process begins. Understanding your valuation range, buyer universe, and deal readiness can help you make informed decisions — whether you’re 6 months or 3 years from a transaction.

7. Due Diligence Is Deeper and Starts Earlier

Buyers are digging deeper into financials, customer contracts, and product roadmaps. Quality of earnings (QoE) reports, GAAP-compliant statements, and detailed cohort analyses are now table stakes. For sellers, this means preparing early and anticipating buyer questions — especially around deferred revenue, churn, and customer concentration.

Our due diligence checklist for SaaS companies outlines the key areas where buyers focus their attention. Proactive preparation not only accelerates the process but also builds buyer confidence — often translating into better terms.

Conclusion

The software M&A market remains active, but it’s no longer a seller’s free-for-all. Buyers are more disciplined, valuations are more grounded, and execution matters more than ever. For founders and CEOs, the path to a successful exit lies in preparation, positioning, and partnering with the right advisors.

Use this insight in your next board discussion or strategic planning session. When you’re ready, iMerge is available for private, advisor-level conversations.