Software buyout market slumps to post-pandemic low as AI disruption weighs on valuations

Private equity investment in software companies has fallen sharply in 2026, hitting its weakest level since the Covid-19 pandemic, as concerns over AI reshape expectations for the sector’s long-term earnings power and business models, according to a report by the Financial Times citing data from PitchBook.
The figures show that the value of software-focused buyouts reached around $50bn in the first five months of the year, down from approximately $88bn in the same period in 2025. That marks the lowest start to a year since 2020, when pandemic-related market disruption severely curtailed global deal activity.
The slowdown follows a period of exceptionally strong activity in 2025, when private equity firms completed roughly $290bn of software acquisitions, driven by stable recurring revenues and strong debt-financed buyout structures.
However, sentiment has shifted rapidly as investors reassess the impact of AI on traditional software business models.
The emergence of advanced generative AI platforms and “agentic” tools capable of performing tasks previously handled by enterprise software has raised questions about future demand, pricing power and user-based licensing structures.
Uncertainty around post-AI valuations has made it difficult for investors to gain internal approval for new transactions, according to advisors, with deal teams struggling to underwrite earnings durability in affected companies.
The broader concern is that AI-driven automation could erode established software revenue models, particularly those reliant on per-seat pricing or workforce-linked usage metrics. This has contributed to a marked slowdown in both deal origination and execution across the sector.
Monthly transaction activity has also weakened significantly, falling from a peak earlier in the year to much lower levels by May, reflecting a sharp cooling in investor appetite after initial AI-related announcements from emerging competitors such as Anthropic intensified fears of disruption across enterprise software markets.
Despite the downturn in deal volumes, some stabilisation has emerged in public markets, where listed software equities have recovered part of their earlier-year losses. This has not yet translated into renewed private equity momentum, however, with advisers reporting continued caution among sponsors and lenders.
Certain investors are beginning to differentiate more clearly between software subsectors based on perceived AI resilience, with mission-critical infrastructure and highly regulated applications seen as more defensible than productivity or horizontal tools exposed to automation risk.
Recent activity suggests that select transactions are still proceeding in niche areas. For example, Hg recently agreed to acquire US-based Rightsline in a deal that highlights continued, albeit selective, investment appetite in specialised software assets.