Let’s cut through the noise and dive into what’s really shaping technology M&A in 2025 and beyond. And no, for the record, this isn’t AI-generated content—just good, old-fashioned, human insight. The big picture? We’re anticipating a significant year for tech M&A, with deal counts and valuations poised to surge by Q2-Q3, particularly in the SaaS and tech-enabled services sectors.
But here’s the thing: “technology” is not a singular industry. Technology is a business model focused on streamlining the delivery of a business service – whether that’s a tech-enabled business service, a native product, or a software platform. Let’s break down the key drivers of valuation and transaction activity – from the shifting interest rates to the AI revolution – and get a clear picture of the evolving dynamics driving tech M&A.
1. Navigating Shifting Interest Rates
Let’s start with rates. The recent cuts, and more importantly, the confidence in the stability of the rates environment, are a breath of fresh air for valuations and seller confidence. SaaS valuations, in particular, are highly sensitive to these shifts. Why? Because technology platforms – and most specifically SaaS – have cash flows that are heavily weighted towards the future. Thus, lower rates – decreasing the cost of capital – make those future earnings more valuable today. If you are in the SaaS space, keep a sharp eye on these trends—they could significantly impact your deal timing and valuation. To help navigate these shifts, we will closely monitor inflation and economic indicators – especially as they pertain to a change in rate stability!
2. AI’s Dual Impact: Opportunity and Disruption
AI isn’t just a buzzword—it’s a seismic shift. The emergence of models like DeepSeek are amplifying the speed through which inefficiencies can be addressed. This presents a double-edged sword for existing technology businesses.
- The Upside: AI offers data-driven businesses a chance to unlock new value. Service providers who can bridge the gap between AI’s potential and practical application are sitting on a goldmine.
- The Downside: If your business model relies on easily replicable, non-enterprise solutions, you might be facing a reckoning. Be prepared for potentially accelerated exit strategies.
- The Strategic Play: For many businesses, AI forces a fundamental reevaluation of their business models. How do we integrate AI into our core offerings? How do we ensure data security? The answers to these questions will define the next wave of tech innovation.
3. Technology Adoption Fuels Growth… and M&A Activity
Industries grappling with margin pressures like manufacturing, logistics, and construction are turning to tech solutions to stay competitive. Increasing adoption means higher growth rates relative to the general economy, spurring additional investment and buyers looking to acquire growth and innovation.
High-Value Tech Solutions: Driving Productivity and Margin Improvement
Industrial enterprise software models that increase productivity and retain skilled employees are seeing tremendous demand from strategic buyers and private equity investors. Connected frontline worker technologies, such as Acadia (acquired by Epicor), are a prime example. The ability to seamlessly integrate AI capabilities into these solutions to capitalize on the value of data is another key factor driving acquisition strategies.
Supply chain insight analytics software and enterprise HR solutions are also highly coveted. These solutions empower businesses with the actionable data and tools needed to streamline operations and significantly reduce costs.
Industry-Specific Growth Drivers
- Defense and Government Tech: While the mid-to-long-term outlook remains positive, the sector is in a holding pattern for now.
- Healthcare IT (HCIT): It’s a mixed bag, depending on who’s writing the checks. While many health systems face challenges, post-approval pharma is showing experiencing growth.
- Technology Service Firms: Companies that assist industries in implementing technology initiatives are benefiting from growing TAMs and ongoing high valuations relative to other business services.
4. Beyond the Rule of 40: Prioritizing EBITDA for Sustainable Success
The Rule of 40 is turning 10, and it is still relevant for evaluating valuations and the “realness” of buyer/investor interest. But here’s the truth: investors are watching the bottom line. Gone are the days of software platforms securing growth capital or buyouts by simply checking a “rule of 80” box.
Sure, high ARR multiples still abound, but validated by robust EBITDA margins. We’re talking 30%, 40%, even 50% at scale – in addition to strong, sustainable growth. Look at the behemoths—Oracle, SAP, Microsoft, Intuit. They’re trading at high single-digit or low double-digit revenue multiples, not because of their growth rates, but because of their profit margins and mission-critical functions. Growth alone isn’t enough. It’s about sustainable, profitable growth.
5. Crafting Offensive and Defensive Tech M&A Strategies
Several years ago, investors and buyers leaned into the industry vertical software models. They imply a go-to-market strategy, a clear universe of potential buyers, and relatively clear delineation of business risks.
This playbook is still very much intact, but the game has evolved. Investors are digging deep—really digging deep—into sales and marketing. Sellers need to back up sales and marketing ROI figures with hard data: CAC/LTV by channel, historical returns analysis on marketing spend, and a strong defense of your brand, messaging, and team. These metrics correlate to success.
With that in mind, let’s talk strategy. Both how to play to win and protect what you’ve built.
- Offensive Strategy: Focus on your niche, nail your go-to-market strategy, and understand your risks.
- Defensive Strategy: Can your business withstand an economic downturn or AI disruption? Is your platform built on proprietary data, or is it easily replicated? Tech debt and oversold features? They will come back to haunt you during due diligence.
The landscape is definitely more complicated, but that’s because we now have the tools to pinpoint what truly drives success. The good news? The focus on industry vertical software often provides SaaS platforms with greater flexibility than broader, horizontal approaches.
What’s Next? Start Mapping Your M&A Game Plan
This sounds like a lot to take in, but don’t stress yet. M&A advisors, like the team at SC&H Capital, are here to help business owners and management teams navigate these decisions. Whether it’s weighing market conditions against strategic initiatives or figuring out the right time to sell, we provide tailored guidance. Drawing from our current knowledge of buyer and investor sentiment, we have been able to give our clients highly specific advice– telling some to wait and prepare, and others to act now. This is because we know how to understand your unique situation and provide the most valuable advice.
The technology M&A landscape is ripe with opportunity, but it demands strategic thinking and informed decision-making. Need some help navigating your next transaction? Let’s chat! Reach out to our team today to schedule a 1:1 consultation with an expert.
