About a dozen financial advisers and dealmakers say that a broad decline in software stocks has begun to slow transactions and delay IPOs as market volatility makes standard valuation metrics unreliable and discourages potential buyers. The trend intensified last week when the S&P 500 software and services index recorded its worst three-month performance since May 2002, according to Evercore ISI equity strategists.
Although the sector has recovered some ground, it remains roughly 25% below its October 28 record, while the S&P 500 overall is up about 1%. That gap between software and the broader market is complicating negotiations on both sides of transactions.
Why deal activity is slowing
Bankers and investors point to several interrelated reasons for the slowdown. First, steep declines in software share prices have moved peer-based valuation benchmarks - such as revenue multiples - so quickly that they no longer provide stable reference points. Buyers worry that paying a premium based on previous multiples will leave them exposed if prices fall further. Sellers, for their part, are often unwilling to accept prices that reflect the current trough of the market.
"Some people can’t afford to sell on the way down," said Vincenzo La Ruffa, managing partner at private equity firm Aquiline Capital Partners.
Dealmakers also say the selloff is being driven in part by anxiety over how artificial intelligence might reshape software business models. That uncertainty is prompting sentiment-driven trading rather than careful differentiation between winners and losers, according to Wally Cheng, head of global technology M&A at Morgan Stanley.
"Investors have been trading on fear," Cheng said. "Everything’s down and there really hasn’t been a very thoughtful, detail-oriented approach to sorting through who winners and losers are."
Cheng added that even when a potential buyer’s view of a company’s fundamentals has not changed, the premium the buyer was willing to pay can become unrealistic after a share price falls sharply unless the deal terms are adjusted.
Visible effects on completed and attempted deals
The impact of the rapid repricing is already apparent in several transactions and corporate plans. Fintech software company Brex closed a major funding round around the October market peak at a valuation above $12 billion but was sold to Capital One last month for about $5.15 billion.
Another example is OneStream, which went public in July 2024 near a $6 billion valuation. By early November it was reported to be worth about $4.6 billion when news emerged that it was considering going private again. In January, Hg Capital took OneStream private at about $6.4 billion, effectively only modestly exceeding its IPO valuation and offering limited gains for public investors.
Mike Boyd, global head of M&A at Canada’s CIBC, said negotiating price becomes more difficult when markets are volatile, making deals harder to close.
La Ruffa predicted: "Over the next few weeks in the market, we think lots of deals will break (apart). Some will slow down, some will reprice. We will see more assets not trade than reprice."
Industry bankers note that several public software firms are trading at about one times forward revenue or less, a fraction of the multiples the sector typically enjoyed. Ron Eliasek, chairman of Global TMT investment banking at Jefferies, said that dynamic is unsustainable and will likely lead either to more take-private transactions or to valuation recoveries over time.
Wider market consequences and IPO pipeline
The share rout has not been limited to U.S. names. Shares of British analytics firm RELX and Dutch legal analytics firm Wolters Kluwer have each fallen by roughly 20% amid the selloff, market participants said.
That chill is particularly acute for IPO plans. Liftoff Mobile, a company backed by Blackstone, told investors it had postponed a planned listing "given current market conditions." Meanwhile, Norwegian software company Visma may delay a potential $20 billion London listing because of the market weakness, according to two people familiar with the matter.
Morgan Stanley cautioned that the turmoil in public software equities could spread into private credit markets. Software companies represent about 16% of the roughly $1.5 trillion U.S. loan market, and stress in valuations and borrower performance could have knock-on effects in that segment.
Views from senior executives
At a recent conference in New York, Jon Gray, president of Blackstone, said the firm had undertaken an internal risk assessment to identify where AI disruption might pose the greatest risk in its portfolios, categorizing assets as "yellow, red, green."
By contrast, some private equity leaders urged calm. Robert Smith, founder of software-focused private equity firm Vista Equity Partners, wrote to investors that AI will "enhance software, not replace it," and argued that recent volatility is driven more by sentiment and uncertainty than by deterioration in fundamental company performance.
Goldman Sachs CEO David Solomon likewise suggested that recent market narratives may have become overly broad, noting that there will be both winners and losers and that many companies will adapt. "The narrative over the last week has been a little bit too broad. There will be winners and losers, and plenty of companies that will deal with it just fine," he said.
Buyers seeing opportunity
Despite the headwinds, some investors are treating the selloff as a buying opportunity. Eliasek at Jefferies said multiple private equity partners reached out late last week expressing interest in buying software businesses, and the message from buyers has been, "Bring us your best ideas."
At the same time, bankers warn that the market is likely to see a mix of outcomes: some transactions will break apart, others will be renegotiated at lower prices, and some assets may simply remain unsold until valuation levels recover.
Bottom line
Rapid repricing in software equities, driven in part by concerns about AI and amplified by sentiment-driven trading, is making it harder for buyers and sellers to agree on price and for IPOs to proceed as planned. The effects are visible in recent deal outcomes and in the cooling of planned listings, with potential spillovers into private credit markets noted by major banks.