Are legacy data providers the ultimate value play, or a falling knife in an AI-dominated world?
Heavyweight private equity firms like Thoma Bravo and Hellman & Friedman are currently running the numbers on financial data giant FactSet (FDS). However, despite massive drops in share prices across the sector, buyout momentum is stalling as dealmakers struggle to model the existential risk of generative AI.
💰 THE VALUATION COMPRESSION (THE “AI DISCOUNT”): Financial data and research firms used to command massive premiums due to their sticky, predictable subscription revenues. The AI boom has violently reversed this trend:
- The Stock Drops: Over the last six months, FactSet has plummeted 39%, while competitors Morningstar (MORN) and Gartner (IT) have fallen 27.6% and 29.5%, respectively.
- The Multiples: FactSet’s Enterprise Value-to-EBITDA ratio—a key buyout metric—has crashed to roughly 12x, down from 21x last August and 30x in 2022. Morningstar and Gartner are similarly compressed to 12.6x and 14.8x.
- The Market Cap: FactSet is currently valued at just over $8.4 billion, down from $17.5 billion a year ago.
🛑 THE PRIVATE EQUITY DILEMMA: Why aren’t PE firms pulling the trigger on these historic discounts? Because traditional LBO models rely on predictable long-term cash flows. Investors are terrified that advanced LLMs (like Anthropic’s Claude) can easily replicate the way these firms package and sell data. While FactSet’s recent revenue grew 6.9%, investors note this was largely driven by price hikes on existing clients rather than new customer acquisition—a fragile dynamic if AI severely erodes their pricing power.
“AI is such a new technology… that it’s very hard to predict things years in advance.” — Jordan Jacobs, Co-founder, Radical Ventures
🛡️ THE DEFENSIVE PIVOT: If you can’t beat them, become the distribution channel. FactSet recently saw its shares jump 6% after announcing a direct partnership with Anthropic to develop new tech tools. This is the exact blueprint legacy software must follow: proving to the market that AI will act as an accelerant to their deeply embedded business processes, rather than a direct substitute.
💡 ANALYST TAKEAWAY: We are witnessing a brutal bifurcation in the enterprise software market. The question for Private Equity is no longer “is this software cheap relative to history?”—it is “are these unit economics defensible in an AI-saturated world?” Task-focused data aggregators will be eroded, but platforms that are deeply embedded into institutional workflows might be the greatest value-investing opportunity of the decade. The firm that figures out how to accurately underwrite AI substitution risk is going to make billions.
👇 Private Equity & Tech Investors: At a 12x EV/EBITDA multiple, has the market over-punished FactSet for AI disruption, or is this just the beginning of the end for traditional data subscription businesses?