May 04, 2025

Recently, GLC Advisors released their Q1 2025 Software Capital Markets report, providing insights into the current capital and M&A conditions in the software market. The report highlighted a stabilization trend in valuations, with multiples showing a slight decrease year-over-year but remaining relatively steady since mid-2024.

In terms of M&A activity, there has been a decline in both the number of deals and total value over the past four quarters. Private equity firms have been focusing on add-on acquisitions, with a slight increase in activity noted in Q1 2025. Growth rates in the software sector have been moderating since early 2023, with a continued trend of deceleration into Q1 2025, reflecting a “new normal” in SaaS growth.

Operational metrics such as the Rule of 40 and Net Revenue Retention continue to be strong valuation drivers, rewarding companies that demonstrate efficiency and profitability. Despite available capital, the number of transactions has been decreasing, indicating a more selective investment environment. IPO activity remains limited, with inconsistent performance outcomes for companies going public in Q1 2025.

Overall, the software market has been experiencing a slow grind with compressing valuations, normalizing growth, and softening deal activity. Companies with strong operational metrics and product-market fit are still able to stand out in this challenging environment. It is important for operators to focus on factors like NRR, Rule of 40 alignment, and being prepared for potential M&A opportunities to navigate the current market conditions successfully.

Stay Well!