M&A in the software sector: Transaction momentum and high valuations remain

The M&A market in the software sector remains robust despite the market consolidation: both transaction activity and valuation levels remain well above the average for other sectors. A sale, or structured preparation for one, therefore remains an attractive option for software entrepreneurs.

Key takeaways at a glance

Valuations remain high: Software multiples are well above the average for other sectors.
Transaction activity is recovering: Following the decline compared with the record year of 2021, activity is returning to the long-term trend.
Financial investors are returning: With financing conditions stabilising, competitive pressure for attractive software assets is increasing.
Favourable timing for sellers: Those who prepare their sale in a structured manner will benefit from the current valuation levels and the breadth of buyer interest.

How has the software M&A market developed since 2021?

Compared with the record figures from 2021, both the number of transactions and the valuations achieved have since fallen slightly. However, both metrics remain at a high level, close to the long-term trend and significantly above the figures for other sectors. The software sector has thus proved to be one of the most resilient M&A categories.

Why do valuations in the software sector remain high?

The multiples are driven by structural factors: recurring revenue from SaaS models, high scalability, low capital tied up and strong growth prospects. The “Rule of 40” has established itself as a key valuation benchmark in this context. Which valuation methods are appropriate in individual cases depends on the business model and the buyer structure.

Entwicklung Transaktionsanzahl und Bewertungen im Software-M&A-Markt – Wissen Loy & Co

What does this mean for a planned sale of a business?

With the return of private equity investors and a stabilised interest rate environment, we expect transaction activity to continue to pick up. For shareholders considering a company sale, the current market environment is favourable – particularly for well-positioned software companies with a clear revenue model and a robust growth story. Early and structured preparation is crucial; our Software & IT sector expertise provides support throughout the entire process.

Frequently asked questions about M&A in the software sector

How are software companies currently valued?
Software companies are predominantly valued using revenue or EBITDA multiples, with recurring revenue (ARR), growth rate and profitability being the key factors determining the level of the multiple.

Is now a good time to sell a software company?
The current market conditions are favourable: valuations remain high, and strategic buyers and financial investors are showing active demand. Structured preparation significantly increases the likelihood of success.

What do buyers in the software sector pay particular attention to?
Recurring revenue, customer retention (net revenue retention), platform scalability, the calibre of the team and a clearly documented revenue model are among the key value drivers.