This may be an overreaction but what do you guys think happens with all of the software bankers? Are you seeing deal flow decline? There are 5,000 PE owned software companies, will they transact? How can you disprove the negative that AI is destroying software. Feels like no PE firm that is a generalist wants to touch the space anymore.
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Based on the most helpful WSO content, the future of software bankers isn't as bleak as it might seem. While AI and automation are undoubtedly reshaping industries, including finance, there are several factors to consider:
Deal Flow and PE Activity: The software space remains highly active, with thousands of PE-owned software companies still in play. These companies will continue to transact, especially as private equity firms look to exit investments or consolidate portfolios. The notion that generalist PE firms are avoiding the space entirely seems exaggerated. Software remains a critical sector, particularly as businesses across industries increasingly adopt digital solutions.
AI's Impact on Software: AI isn't "destroying" software; rather, it's transforming it. This creates opportunities for software bankers to focus on deals involving AI-driven companies or those adapting to AI trends. The shift may require bankers to deepen their understanding of AI and its implications, but it doesn't eliminate the need for their expertise.
Specialization and Value: Banking is fundamentally a relationship-driven business. Clients value the strategic insights and trust that bankers bring to the table. While automation may streamline certain tasks, it cannot replace the nuanced judgment and advisory role that software bankers provide, especially in complex transactions.
Evolving Roles: As the industry evolves, software bankers may need to adapt by focusing on emerging trends like SaaS, cloud computing, and AI integration. This evolution ensures their relevance in a changing market.
In summary, while the landscape is shifting, software bankers who adapt to these changes and stay ahead of industry trends will continue to find opportunities. The demand for expertise in navigating the complexities of software transactions remains strong.
Sources: From Private Equity Associate to VP in Private Equity, https://www.wallstreetoasis.com/forum/investment-banking/breaking-into-private-equity-from-banking?customgpt=1, Future of Banking, What Field Are You And in What Broad Region?
Idk if you just work for a shit bank or something but software M&A volume has been hot. We aren’t in the business of selling MM PE shitcos. If your at some garbage MM bank then maybe your career is over.
Strategics have been highly active, and AI is still software… why would it end a software bankers career? Who covers AI at your bank?
AI risk isn’t new as well, anyone who even reads about software knows this has been a major fear for around 2+ years. I think this will change the future for software, perhaps SaaS may be dead in 5 years, but Software is not exclusively SaaS. Consumption based pricing is likely the end steady state.
Fair, but what percentage of overall software M&A has been Saas? Large. So there would be way fewer bankers needed to just cover strategic deals…
Agree 90%+ has probably been SaaS. Bunch of AI native companies are still operating through SaaS. Still seeing some decent deal flow through, and sponsor appetite (if they are software specialists as you mentioned the generalists aren’t playing). Think it’s an awakening, innovate or die. Will be some big winners and big losers on the buyside over the next 5 years. Couldn’t imagine a worse job than being at a hedge fund covering software though.
I think long term, the government will not let 3 major companies control the entire technology industry. (Antropic, OpenAI, Google). That is dangerous for everyone, and every industry.
It's 1998 kid, the party's just getting started
Big technological innovation is great for the advisers of transactions as incumbents want to buy AI and/or raise capital to organically build it. Much harder to be an investor than banker in the space since investor actually are the ones taking on the risk. AI is not magic, not every SaaS business will be replaced by AI natives in the next 5 years, look at how past tech innovations have gone. Some incumbents will go to zero and AI natives will dominate some spaces. Conversely other spaces will just have incumbents get bigger through incorporating AI. This is a pretty lukewarm take. Think much more bullish on growth and VC guys who are okay with a few zeros as long as there's a big hit because think AI will make it harder to have singles and doubles like traditional PE and create more strike outs and home runs.
AI is not magic but if there’s a big question around terminal value, PE won’t survive which means they will migrate away from software…
AS400 is still around. :-( Many Saas companies have deployed things that make their software sticky. They thoughtfully put them in place to compete. So they will generate recurring revenue long term if they are doing things right. Replacement cost is high (many B2B saas are considered to be replaced every 3 to 7 years)
But… the big but… are their pipes growing. Many b2b customers are doing the “wait and see” IMHO. Hence THIS.
There are still things to be done to make AI robust… ie can ai pass a sox or compliance audit. PCI?
Market volatility increases deal flow for bankers, and right now is a generational buying / dealmaking opportunity so I’m seeing activity actually heat up. We expect 2026 to be an even better year than ‘25 especially for big ticket M&A.
The “SaaS apocalypse” was simply a long overdue re-rating back to fundamentals, and was much needed. The unearned aura from COVID-era inflated valuations has finally dissipated, and so sellers are ready to come to the table and make an exit that pleased shareholders or at least gives them a sense of fight in the face of AI disruption. Conditions like these are very good for the sell-side, PE is probably hurting more.
Yeah but how can any PE Firm know the right price? Also wouldn’t it be so hard to raise debt for software now for an LBO?
The heat up is definitely more on the strategic / strategic side rather than financial sponsor activity, but the market volatility doesn’t have as quick of an impact on debt rates for LBOs. That’s primarily driven by the economics of the business being acquired and the fed rates.
You have more of an issue with buyer skepticism killing a deal than their ability to finance it. I’d expect the impact to materialize as diligence phases taking longer, becoming far more detailed / intense, but no real metrics to quantify this than failed processes I guess? Many of the public SaaS darlings fell and of course they don’t have the greatest cash flow economics which is why they’re a bit untouchable for take privates and instead they become bigger candidates for strategic M&A. However, on the private side, many 2021-era unicorns (and even deca-corns) are cash flow positive and have dramatically come down on valuation internally.
That’s interesting because they become a buyer target for both public strategics (ex: Brex selling to capital one for $5 billion down from an absolutely joke of a $12bn valuation) as well as targets for Private equity (in the few cases where some of these 2021 VC backed darlings do have FCF and need to be cleaned out with new management, cut unnecessary burn etc.) PE firms have their guards up but ultimately they still need to deploy no matter what and they are trying to figure out a way to have new wins clear out any bad bets made over the last few years, all of this creates advisor activity who sees both sides at all times.
Market volatility destroys M&A & IPO deal flow but encourages cap market activity (refis, follow on, etc.). I am pretty sure market returns & advisory fees are strongly correlated, not sure how one can spin the recent rerating as a positive thing.
Agreed though that the whole thing is overblown and business as usual will return, albeit at lower multiples following the rerating.
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