Our Take
M&A freezes when acquirers can't justify valuations; AI hype inflated software prices beyond what buyers will pay, and correction is happening in deal flow, not headlines.
Why it matters
Enterprise software leaders are watching acquisition targets they wanted to buy become unbuyable at previous prices. Timing matters: sellers must recalibrate expectations while buyers rebuild confidence in growth multiples.
Do this week
Enterprise software leaders: audit vendor roadmaps for acquisition risk and lock multi-year contracts with privately-held tools before distressed sellers force fire-sale terms.
M&A collapses to lowest point since the pandemic
Software buyout deals have fallen to their lowest volume since the pandemic recovery, according to Financial Times reporting. The collapse follows the AI investment rout that peaked in 2023 and corrected sharply into 2024.
This marks a reversal of the deal-heavy years after COVID, when venture returns were strong, acquirers had dry powder, and multiples climbed. Software companies that benefited from inflated AI-era valuations now face buyers unwilling to pay those prices.
Valuations and deal logic have decoupled
The slowdown is not a temporary dip. Acquirers are systematically repricing expectations. Software vendors that raised at 10-15x revenue multiples in 2021-2023 now meet buyers who anchor to 4-6x or walk away. The gap is too wide for negotiations to close.
For enterprise software buyers (the CIOs and procurement teams), this matters in two ways. First, consolidation slows, meaning your vendor may stay independent longer or pursue different exit paths (IPO, private equity, acqui-hire). Second, distressed sellers will emerge. Companies that overextended on AI features and burned cash will seek acquirers at steep discounts by late 2024 and 2025.
Treat acquisition risk as a vendor governance issue
If your organization depends on a privately-held software vendor (especially one funded in the 2022-2023 window), model two scenarios: one in which it is acquired at a discount and management turns over, and one in which it goes public or stays private under new ownership structures. Both change roadmap priorities.
Lock contract terms that protect you against acquirer-driven feature sunsetting or pricing changes. Evaluate open-source or vendor-agnostic alternatives for critical workflows. And if you have been watching a target for acquisition that would help your business, the price may soon reset in your favor, but only if you move before the distressed-sale window closes.