Tech M&A Market Update: What Founders Should Know This Quarter
Every quarter, founders are treated to a barrage of market commentary. Multiples are up. Multiples are down. Deal volume is recovering. Buyers are cautious. These narratives make for engaging headlines, but their relevance to any specific founder considering an exit is limited. The gap between aggregate market statistics and individual transaction outcomes remains vast.
This update takes a different approach. Rather than simply reporting what indices say, we examine what the data actually implies for founders navigating the current environment, and what it does not tell you.
The Headline Numbers
Let us start with what the data shows, then discuss what it means.
Bain & Company reports that tech M&A activity increased by more than 75% in 2025, propelled primarily by AI-related transactions. Almost half of strategic technology deal value for transactions above $500M came from AI natives or deals that explicitly cited AI benefits. Global M&A value reached $4.8 trillion for the year, approaching the second-highest total on record.
McKinsey's M&A research shows 2024 global deal value at $3.4 trillion, up 12% from the prior year. Corporate balance sheets hold an estimated $7.5 trillion in cash, and private equity dry powder exceeds $2 trillion globally. The capital exists.
Software Equity Group's Q3 2025 data shows SaaS M&A hitting record transaction volume: 746 deals in a single quarter, extending a streak of 600-plus deals. The market is on pace to exceed 2,500 SaaS transactions in 2025, a new annual record. Median valuations held steady at 4.1x revenue, with an average of 5.4x.
What These Numbers Obscure
The challenge with aggregate statistics is that they describe a market that no individual participant actually experiences. A founder selling a $3M ARR vertical SaaS business is not competing in the same arena as Alphabet acquiring Wiz for $32 billion.
Three dynamics get lost in the headlines:
First, the spread is enormous. SaaS Capital's research shows bootstrapped private companies averaging 4.8x while equity-backed companies average 5.3x. But within those averages, the bottom decile trades at 1.9x while top performers command 15x or higher. The median tells you nothing about where your business will fall within that range.
Second, AI is distorting the picture. The surge in tech M&A is concentrated in AI-related transactions. If you are not building AI infrastructure or selling to buyers who see clear AI synergies, the record deal values being reported may have little bearing on your situation. Meanwhile, Bain notes that one in five strategic dealmakers walked away from transactions specifically because of concerns about AI's impact on the target's business model. For many software companies, AI represents risk rather than premium.
Third, size matters more than ever. The recovery in M&A is concentrated in larger transactions. Megadeals are driving overall value statistics. For businesses below $10M in enterprise value, the environment is more nuanced. Buyer interest remains strong for quality assets, but the competition is also fiercer, and the margin for error in positioning and process is smaller.
What is Actually Happening in the Mid-Market
For founders in the lower middle market, typically $1M to $4M ARR selling for $5M to $15M in enterprise value, the picture is more complex than headlines suggest.
Buyer interest remains robust, but buyers have become more selective. The era when growth alone justified premium valuations has ended. What buyers are underwriting now is predictability: recurring revenue that renews reliably, margins that do not depend on heroic cost-cutting, and defensibility that does not evaporate when a larger competitor enters the market.
Software Equity Group data shows the clearest pattern: companies with NRR above 120% trade at a 63% premium over the market median. More than 80% of companies with retention above 120% trade above the median entirely. Retention has become the sorting mechanism that separates premium outcomes from disappointing ones.
The formula matters here. Net Revenue Retention is calculated as:
NRR = (Starting ARR + Expansion - Churn - Contraction) / Starting ARR
A business with $1M starting ARR, $200K in expansion, $80K in churn, and $20K in contraction has NRR of 110%. That same business with $150K in churn has NRR of 93%. The difference between those two scenarios, in the current market, can be a 2x or 3x swing in valuation multiple.
The Lower End Gets Attention
One encouraging development is increased buyer interest in smaller transactions. Private equity firms, facing pressure to deploy aged capital (dry powder undeployed for more than two years has surged 82% since 2021, according to Forvis Mazars analysis), are looking further down-market for deployment opportunities.
Platform strategies, where a PE firm acquires an initial business and then bolts on smaller acquisitions, create demand for businesses that might previously have been overlooked. A $2M ARR company that fits strategically into an existing platform can command meaningful interest from buyers who would not otherwise pursue deals at that scale.
Vertical SaaS is particularly active. SEG reports that vertical SaaS now represents 54% of all SaaS M&A activity, up from 43% a year earlier. PE firms are executing roll-up strategies in healthcare, real estate, logistics, and other verticals where fragmented software markets offer consolidation opportunities. A founder with a niche product serving a specific vertical may find more interested buyers than they expect.
What Has Not Changed
Amid the market fluctuations, certain fundamentals remain constant.
Quality commands premium. Regardless of what averages do, strong businesses find eager buyers willing to pay. The current market has not eliminated premium outcomes; it has raised the bar for achieving them. Founders whose businesses demonstrate genuine product-market fit, as evidenced by retention metrics rather than growth claims, continue to achieve multiples well above reported medians.
Process matters. A competitive process with multiple engaged buyers creates leverage that a sole-source negotiation cannot. McKinsey's research on programmatic acquirers, those who make multiple acquisitions annually, shows they outperform peers by 2.3% in annual shareholder returns. These sophisticated buyers are constantly evaluating opportunities. Running a process that attracts their attention requires preparation and positioning that most founders cannot execute alone.
Timing is relative. Headlines about "good" or "bad" markets to sell encourage founders to think of timing in macro terms. In practice, the right time to sell depends more on business-specific factors: the trajectory of your metrics, your competitive position, your personal readiness, and the availability of natural buyers. A founder selling into business strength during a "soft" market will often outperform one selling a struggling business during a "hot" market.
The AI Question
No market update is complete without addressing AI, but our perspective may differ from what you read elsewhere.
For most SaaS businesses, AI is not a valuation accelerator. It is a risk factor. Buyers worry about whether AI will commoditise your product, whether your customers will build the functionality themselves using AI tools, or whether a well-funded competitor will use AI to replicate your features faster than you can evolve.
The businesses commanding AI-driven premiums have specific characteristics: proprietary data assets that improve with usage, deep workflow integration that creates switching costs, or domain expertise that generic AI models cannot replicate. If your AI story is "we added an AI feature," buyers are likely to discount rather than premium your valuation.
The more relevant question is whether your business is defensible against AI disruption, not whether you can claim AI as an upside.
Practical Implications for Founders
Given all this, what should a founder actually do?
Ignore the averages. Whether the median multiple is 4x or 5x or 6x matters less than whether your specific business will command a premium within that range. Focus on the factors that drive dispersion, not the central tendency.
Audit your retention obsessively. If your NRR is below 100%, you have a leaky bucket that will hurt valuation regardless of market conditions. If it is above 110%, you have a story that resonates with buyers. Understanding the drivers of your retention, and improving them where possible, is the highest-ROI preparation activity.
Think about your buyer universe. Who specifically would want to acquire your business, and why? A PE firm running a healthcare software roll-up? A strategic acquirer filling a product gap? A competitor looking to consolidate? The more specifically you can answer this question, the better positioned you are to run a process that reaches the right buyers.
Do not wait for a "better" market. If your business is ready and you are ready, market conditions should not override that readiness. Waiting for perfect macro conditions often means missing windows when your business metrics are strongest or when specific buyer interest is highest.
The Quarter Ahead
We expect continued deal activity through Q1 2026. PE dry powder pressure, combined with strategic acquirers' need to fill capability gaps, creates sustained demand. Valuation discipline will persist; buyers will not return to the multiple expansion of 2021. But for businesses that meet the quality bar, capital remains available and competition for quality assets remains real.
The founders who succeed in this environment are those who prepare thoroughly, position accurately, and run processes that create genuine competitive tension. Market conditions set the broad parameters; execution determines outcomes within them.
If you are evaluating whether now is the right time to explore options, we are happy to share our perspective on how your specific business aligns with current buyer interest.