Q1 2025 has revealed an acceleration of recent trends in software M&A, underpinned by renewed activity from local European strategic acquirers and investors, and a maturation of AI-native and outcome-based software models.
Finn O’Driscoll, Tech M&A Partner and Software Lead, highlights the key trends shaping the market through this quarter.
Trade buyer exit routes becoming more important for PE
Exit reviews are becoming a more material area of focus for PE investors and their investment committees when considering a new platform investment. For many, a clear & credible pool of trade buyers to underpin an exit route is now a prerequisite as an alternative to a PE secondary or tertiary route.
Outcome and usage-based software revenue models continue to become more common
In response to shifting market demand from B2B acquirers of software, including greater scrutiny on ROI delivered, and consumption becoming increasingly API-led and integrated into customer workflows, we continue to see a trend toward the fastest growing software providers deploying outcome and data consumption-driven based pricing structures. These structures are better aligned with the value being extracted by customers.
AI-native software assets will see outsized interest
Acquirers are increasingly prioritising AI-native capabilities over retrofitted solutions. Software businesses that have embedded proprietary AI into core workflows are outperforming their peers in processes. This will become a key diligence filter, for both strategic and financial buyers.
Trade buyers are firmly back at the table
In a lower-growth environment, where sales cycles and new logo acquisition remain slower, corporate acquirers are renewing their focus on equity value creation through M&A. Specifically, they are targeting acquisitions of complementary products or customer bases that unlock cross-sell and up-sell opportunities, driving wallet share expansion.
Deal volumes driven by UK and European acquirers
Despite the reputation of US acquirers and investors for outcompeting their UK and European counterparts, the data across the UK mid-market over the last 24 months suggests otherwise. UK and European investors are regularly coming out on top in competitive auction processes, with their local focus and insight driving their ability to do their work pre-emptively and gain an edge over US counterparts, both in terms of value and deliverability.
Geopolitical and regulatory scrutiny rising
Cross-border transactions are expected to continue facing heightened regulatory scrutiny, particularly in sectors considered critical (e.g. cybersecurity, infrastructure, healthtech). European acquirers have an increasing relative advantage when operating under local regulatory frameworks, particularly when seeking to acquire sensitive IP or public-sector vendors.
Trade buyer exit routes becoming more important for PE
Exit reviews are becoming a more material area of focus for PE investors and their investment committees when considering a new platform investment. For many, a clear & credible pool of trade buyers to underpin an exit route is now a prerequisite as an alternative to a PE secondary or tertiary route.
Outcome and usage-based software revenue models continue to become more common
In response to shifting market demand from B2B acquirers of software, including greater scrutiny on ROI delivered, and consumption becoming increasingly API-led and integrated into customer workflows, we continue to see a trend toward the fastest growing software providers deploying outcome and data consumption-driven based pricing structures. These structures are better aligned with the value being extracted by customers.
AI-native software assets will see outsized interest
Acquirers are increasingly prioritising AI-native capabilities over retrofitted solutions. Software businesses that have embedded proprietary AI into core workflows are outperforming their peers in processes. This will become a key diligence filter, for both strategic and financial buyers.
