Artificial Intelligence Strategies Drive Record Software Merger Volume

2026-02-10 economy

San Diego, Monday, 9 February 2026.
Data reveals a record 2,700 transactions in 2025, a 28 percent jump, as 72 percent of targets leveraged artificial intelligence to navigate a volatile valuation landscape.

A Record Year Amidst Market Turmoil

The software industry is currently navigating a stark paradox: while public valuations are plummeting, private merger and acquisition (M&A) activity has hit historic highs. According to the 2026 Annual SaaS M&A Report released today, February 9, by Software Equity Group (SEG), the sector witnessed a record-breaking volume of activity in 2025 [1]. The data indicates that nearly 2,700 transactions were completed over the last year, marking a significant 28 percent increase over 2024 levels [1]. This surge in deal-making was largely fueled by private equity buyers, who were involved in nearly 58 percent of all SaaS transactions in 2025 [1]. However, this aggressive consolidation in the private markets stands in sharp contrast to the volatility seen in public listings, where investors are rapidly reassessing the durability of software business models in the age of artificial intelligence.

AI: The New Barometer for Value

Artificial intelligence has emerged as the definitive wedge separating winners from losers in this new economic landscape. The SEG report highlights that 72 percent of SaaS M&A transactions in 2025 involved target companies that explicitly referenced AI in their positioning [1]. This is not merely a branding exercise; Austin Hammer, a principal at SEG, notes that buyers are looking past the hype to find “proven use cases, defensible implementation, and measurable impact” [1]. The market is effectively testing which platforms can control workflows and defend their value as competitive barriers reset [7]. Consequently, companies that have successfully embedded AI into their core offerings are commanding premium valuations, while those relying on older, seat-based subscription models face an existential threat [1][2].

The Valuation Reset

While deal volume is up, the valuation metrics for software companies have undergone a dramatic compression. At the end of 2022, software companies traded at an average EBITDA multiple of 30x [2]. By the end of 2025, that figure had fallen to 22x, and as of today, the median multiple on forward profitability has dropped further to just 16x [2]. This represents a decline of -46.667 percent in valuation multiples over the last three years. Revenue multiples have seen a similar contraction, falling from 10-12x expected revenue in 2022 to approximately 4x under current market conditions [2]. In the M&A space specifically, the average revenue multiple in January 2026 stabilized at 5.8x, though high-performing assets continue to transact in the 9-10x range [7].

The ‘SaaSpocalypse’ and Debt Pressures

The start of 2026 has been particularly brutal for public software stocks, a phenomenon some traders are calling the “SaaSpocalypse” [6][8]. Following the January 30 rollout of new capabilities by AI firm Anthropic, software stocks experienced a sharp sell-off, dropping roughly 10 percent immediately and extending year-to-date losses to approximately 20 percent [3]. In a single 48-hour window earlier this month, approximately $300 billion in market capitalization was wiped from the sector [8]. This rout has exposed deep vulnerabilities in the credit markets as well. The volume of distressed debt in the sector has surged to around $25 billion as of January 2026, a massive increase from previous years where it stood at less than $10 billion [2]. Major firms are reacting swiftly; for instance, Apollo Global Management cut its direct lending funds’ software exposure by nearly half during 2025 [8].

Adaptation or Obsolescence

The core anxiety driving this market correction is the fear that AI agents will replace human employees, thereby dismantling the per-seat subscription model that has powered the SaaS industry for two decades [2]. Evidence of this shift is already appearing; Publicis Sapient recently reported reducing its traditional SaaS licenses by approximately 50 percent by substituting them with generative AI tools [8]. Despite these headwinds, the outlook is not entirely bleak for those who adapt. While the broader software index has struggled, top-performing companies that demonstrate “AI defensibility” are still achieving double-digit multiples [1]. As the market searches for a floor, the year 2026 is poised to be defined by this dispersion, creating significant pain for laggards but offering substantial upside for platforms that can prove their necessity in an automated world [7].

Sources

Artificial Intelligence SaaS M&A