At the start of this year, private equity focused on software and technology was primed for robust deal activity, building on the momentum of the strong exit rebound seen in 2025.  

Improving liquidity conditions, combined with a growing backlog of portfolio assets facing extended hold periods, continue to push sponsors into the market. However, the recent sell-off in software and tech stocks, spurred by worries about the impact of artificial intelligence (AI) disruption, demonstrates that the path ahead is far from straightforward. 

While there are still reasons to be optimistic about the outlook for software and tech private equity (PE), there is also potential for market shocks. We expect buyers—both PE and corporate —to be much more selective, with capital likely to be concentrated among those who are best positioned to leverage AI’s capabilities and differentiate themselves from peers. 

Against this backdrop of heightened uncertainty, financial and commercial due diligence remains critical. With the added pressure of exit timelines and shifting dynamics within the technology sector, diligence efforts must go beyond business-as-usual activity. Analyses should  assess the potential impact of AI on business models and scrutinize revenue models and margin performance to ensure asset quality.  

With the IPO market poised for a strong rebound, it is also essential that businesses strengthen their operations, enhance governance, and build the financial discipline expected by investors. 

In this article we will highlight key trends likely to shape the market in the year ahead, as well as their impact on financial and commercial due diligence for dealmakers. 

“SaaSpocalypse” and Selective Risk-Taking 

PE firms are under mounting pressure to return capital to limited partners after a prolonged slowdown in deal activity since 2022, which was spurred by high interest rates, tighter financing conditions, and volatile public markets. The median holding period of a US PE-backed company hit 3.4 years in 2024, the longest in nearly a decade.[1]

Over the past several months, more favorable conditions have brought buyers and sellers back to the market. Global M&A deal volumes rose to a four-year high in 2025,[2] while Q3 marked the busiest quarter for IPOs since 2021.[3] The IPO market looks set to build further momentum in 2026, with AI-focused listings expected to be in the spotlight. 

However, dealmakers are likely to be more discerning after the tech sell-off sparked in part by worries that AI advances could disrupt traditional SaaS models. Software stocks have lost more than 20%, or over $1 trillion of their value, at the worst of the market decline this year,[4] giving rise to the term “SaaSpocalypse.” The sell-off has raised concerns in the world of private credit, which is heavily exposed to software companies. 

The subsequent drop in the market value of organizations utilizing SaaS as a model may also give rise to deal opportunities, impacting both private equity firms and corporates. Buyers may be able to acquire companies that previously had too high a price tag, to complement existing offers or to fill selected product gaps. 

Pricing Pressures 

Software vendors are under conflicting pricing pressures as customer perception is shifting from viewing AI-enabled services as a differentiator or premium add-on toward AI as a baseline expectation.  

On one hand, customers increasingly expect that AI-enabled efficiencies will lower their costs across several industries. This is creating a downward pull on pricing for tech and software service providers, making it harder for vendors to justify increases or, sometimes, even hold current rates. From a diligence perspective, this means paying close attention to how pricing strategies are evolving and how exposed a vendor is to these deflationary expectations. 

At the same time, the costs of building, running, and maintaining AI remain high, potentially eroding vendor margins. As a result, vendors are facing a squeeze. In diligence, this should raise questions about long-term sustainability of the business model and the vendor’s strategy to manage compute costs, offer differentiated AI services, and establish transparent pricing expectations in light of this new dynamic. 

Based on our on-the-ground observations, businesses are assessing the longer-term pricing impact of AI across the board over the next five years. 

IPO Momentum 

Global IPO activity stabilized in 2025 following a weak cycle in the preceding years, with big-ticket names in the software and tech space taking center stage, such as Figma’s $1.2 billion IPO and CoreWeave’s $1.5 billion listing. 

The activity is expected to accelerate this year, with a backlog of large, mature private companies and AI-linked mega-deals in the US driving the surge. Firms have already raised $5 billion or more so far this year, and there is plenty of market buzz about the potential public debut of a handful of mega-tech names. According to some forecasts, US IPO proceeds could quadruple to a record amount in 2026. [5] If investors are optimistic about large IPOs by well-established tech names, the sell-off has also highlighted valuation risks for software stocks. 

Continued Carve-Out Activity 

Faced with geopolitical pressures and rapid AI-driven disruption, many corporates are shedding noncore assets to streamline operations and focus on strategic priorities. Some are also considering carving out assets that are too expensive to innovate through AI and using the proceeds to evaluate the purchase of alternative assets that are fairly advanced in the AI journey. 

For investors with strong operational capabilities and the patience to manage transition services and post-separation integration, carve-outs offer a compelling entry point. They typically involve less competitive pressure than traditional auctions and can unlock meaningful value through focused ownership and transformation. 

Evolution of Buy-and-Build Models 

Buy-and-build remains a prevalent M&A strategy, but there is a marked shift toward earlier stage acquisitions. Investors are hunting for acquisitions in new corners and seeking a competitive advantage, particularly in AI. 

Government initiatives are also likely to play a key part in driving deal activity. For example, federal investments are accelerating the buildout of Canada’s domestic digital infrastructure and driving M&A across the AI value chain—including data centers, cybersecurity, and the energy systems required for advanced computing.  

Sovereign AI, which focuses on ensuring national control over critical AI infrastructure and capabilities, has emerged as a key strategic priority. Other government funding in Canada includes ScaleAI programs and IRAP funding for GenAI and deep learning use cases. 

The AI Startup Boom 

The AI-fuelled startup surge is starting to resemble the dotcom boom of the early ‘90s, and small startups have the potential to disrupt established business models.  

In 2026, AI is likely to remain a key area for startup deals, after capturing nearly two-thirds of all venture capital deal value in 2025,[6] with roll-ups focused on AI-enabled software, AI infrastructure, and data center capacity. Here too, government funding initiatives may emerge as a key driver.  

While funding for AI advances in the US is heavily supported by the private sector, the government has also been taking a proactive approach with funding initiatives and tax incentives. Meanwhile, the Canadian government is investing up to $700 million to support the country’s AI ecosystem by expanding domestic AI compute capacity. [7]

The primary strategy of the Canadian program is to mobilize private sector investment, while a secondary one is to build public sector supercomputing infrastructure that will meet the needs of researchers, government, and industry.  

Competition for early AI leaders is likely to be fierce, which could lead to overheated valuations and overlooked fundamental issues when performing transaction due diligence. 

How A&M Can Help 

Our software and technology (S&T) team within Alvarez & Marsal’s Global Transaction Advisory Group (TAG) delivers comprehensive financial due diligence services to clients. We bring a hands-on approach to target businesses, providing deep insights into quality of earnings, quality of revenue/ARR, cash investment, and customer retention. The S&T team leverages its extensive industry knowledge and experience to help clients identify risks and opportunities and execute successful transactions. In Latin America, we also work with early-stage startups backed by venture capital (VC) and corporate VC firms. 

Our Capital Markets and Accounting Advisory (CMAA) team specializes in helping businesses navigate their IPO journey. A&M is a trusted and free-of-audit-conflicts advisor for companies looking to go public. We support companies in overcoming challenges before, during, and after the IPO to ensure a smooth transition to public markets. Our services include IPO workshops, IPO readiness assessments, and gap remediation. 

A&M’s PEPI AI Transformation practice helps PE funds and portfolio management translate AI from a technology theme into measurable business impact. Our work focuses on identifying where AI can drive cost efficiency, improve throughput, and enhance decision-making across functions, while also assessing AI readiness, execution risk, and value creation potential. We support clients through AI diligence, AI diagnostics, opportunity sizing, AI roadmap development, and practical implementation focused on EBITDA impact. 

Conclusion 

The outlook for software and tech private equity remains supportive for deal activity, although it also calls for increased scrutiny. While easing liquidity constraints, prolonged hold periods and growing IPO buzz are setting the scene for a more active deal environment in 2026. These tailwinds are accompanied by potential for volatility in the sector. The disruptive potential of AI technologies is going to be a strong differentiator between businesses that can leverage AI efficiencies effectively and those that can’t. 

[1] PitchBook, “Aging Buyout Portfolios Reach Decade High at 3.4-Year Hold Period,” PitchBook News & Analysis, February 14, 2025.

[2]S&P Global Market Intelligence, “Global M&A by the Numbers: Q4 2025,” January 2026, accessed March 31, 2026. 

[3] Barbara Tague, “Top IPOs to Watch in 2026,” AlphaSense Research Articles, January 22, 2026.  

[4] Gunjan Banerji and Hannah Miao, “The $1.6 Trillion Meltdown That Swept Through Software Stocks,” Wall Street Journal, updated February 2, 2024. 

[5] Rashika Singh, “US IPO Proceeds to Quadruple to Record $160 Billion in 2026 as Dealmaking Rebounds, Says Goldman,” Reuters, February 9, 2026. 

[6] PitchBook, “Investors Are Plowing More Money into AI Startups than They Have in Any Other Hype Cycle,” PitchBook News & Analysis, June 25, 2024. 

[7] Innovation, Science and Economic Development Canada (ISED), “Canadian Sovereign AI Compute Strategy,” Government of Canada, last modified October 31, 2025.