The “bid-ask spread” in software just became unbridgeable.
According to over a dozen top dealmakers, the violent rout in software stocks—the worst three-month performance since May 2002—is bringing M&A and IPO activity to a grinding halt. With the sector down ~25% from its October peak, volatility has made valuations unreliable, leaving buyers afraid to catch a falling knife and sellers refusing to exit at trough levels.
📉 THE VALUATION DISCONNECT:
- The Problem: Public multiples have moved too fast for private markets to adjust. Some software cos are trading at 1x forward revenue, a historic discount.
- The Quote: Vincenzo La Ruffa (Aquiline Capital) predicts: “We will see more assets not trade than reprice… Some people can’t afford to sell on the way down.”
- The AI Fear: Morgan Stanley’s Wally Cheng notes investors are “trading on fear,” dumping stocks without differentiating between AI winners and losers.
🚫 DEAL CASUALTIES: The repricing is already killing liquidity events:
- Brex: Sold to Capital One for ~$5.15 billion, a massive haircut from its $12 billion peak valuation.
- Visma: A potential $20 billion listing in London is likely to be delayed.
- Liftoff Mobile: Postponed its IPO indefinitely.
- OneStream: Taken private by Hg Capital at $6.4 billion, barely clearing its 2024 IPO price.
🦅 THE CONTRARIAN VIEW: While public markets panic, smart money is stress-testing portfolios and looking for bargains.
- Blackstone: President Jon Gray says the firm is running “Red/Yellow/Green” risk assessments on all portfolios to gauge AI disruption exposure.
- Vista Equity: Founder Robert Smith argues the selloff is sentiment-driven, stating AI will “enhance software, not replace it.”
- The Opportunity: Jefferies bankers report that PE firms are actively calling for “best ideas,” looking to scoop up high-quality assets while public valuations are dislocated.
💡 ANALYST TAKEAWAY: We are entering a period of “Price Discovery Paralysis.” Until volatility settles, strategic M&A will be difficult because no board wants to sell at a 3-year low. However, this is prime hunting ground for Take-Privates. If the market persists in valuing viable software businesses at <2x revenue, expect Private Equity to step in and clear the board.
👇 Tech Bankers: Are you advising clients to sell now and take the haircut, or ride out the volatility until 2027?