US bankers claim that some M&A and IPO deals are being disrupted by the software selloff

A sharp fall in software company stocks is slowing down mergers, acquisitions, and IPO plans in the sector, according to several financial advisers and dealmakers. Market volatility has made company valuations unstable, causing buyers and sellers to hesitate.

The selloff has been going on for months and worsened recently. The S&P 500 software and services index recorded its worst three-month performance since 2002. Even after a small recovery, the index is still about 25% below its late-October peak, while the broader S&P 500 index is slightly up overall.

Why deals are slowing

Bankers say deals are stalling because:

• Software stock prices have dropped quickly
• Valuation benchmarks like revenue multiples are changing too fast
• Buyers fear they may overpay if prices fall further
• Sellers don’t want to sell at low valuations

Private equity executives say many sellers prefer to wait rather than lock in losses at current prices.

AI fears behind the volatility

Dealmakers say much of the uncertainty is linked to fears about how artificial intelligence could disrupt software business models. Some investors are selling broadly across the sector without carefully judging which companies will benefit from AI and which may struggle.

Investment bankers say that even if a buyer still believes in a company’s fundamentals, a big share price drop makes the originally planned deal premium look too high, forcing renegotiations.

Examples of valuation impact

Recent deals show how valuations have shifted:

• Fintech firm Brex raised funds at a valuation above $12 billion near the market peak but was later sold to Capital One for about $5.15 billion.
• Software company OneStream went public in 2024 at around a $6 billion valuation. After its stock weakened, it was taken private again at about $6.4 billion, giving limited gains to IPO investors.

Bankers say price negotiations are becoming harder and some planned deals may collapse or be repriced.

Cheap valuations may trigger buyouts

Some advisers note that several public software firms are now trading at around one times forward revenue or less — far below normal sector multiples. They say this situation may lead to more companies being taken private by investors if prices stay low.

The stock decline is not limited to the U.S. Shares of European software and analytics firms like RELX and Wolters Kluwer have also fallen around 20%.

IPO market getting colder

The weak market is also hurting IPO plans:

• Blackstone-backed Liftoff Mobile postponed its planned stock listing due to market conditions.
• Norwegian software company Visma may delay a possible $20 billion London IPO because of the selloff.

Morgan Stanley has warned that stress in software valuations could also affect private credit markets, where software companies make up a significant share of borrowers.

Different views among investors

Some large investors are cautious and reviewing AI risks across their portfolios. Blackstone’s president said the firm is rating investments based on how exposed they are to AI disruption.

Others are more optimistic:

• Vista Equity Partners’ founder told investors that AI will likely improve software, not replace it.
• Goldman Sachs’ CEO said the market reaction may be too broad and that there will be both winners and losers, not universal damage.

Some private equity buyers are already looking for opportunities, telling bankers they are ready to buy strong software businesses at discounted prices.