Growth
Survival of the fittest: Navigating the European PE-backed software market
- Growth
- Report
- 3 minutes read
European mid-market PE software remained highly active and well-capitalised through 2025: despite macro shocks, deal volumes held up and valuations rebounded. Entering 2026, we are seeing rapid AI advances driving volatility and a sharper “flight to quality”, that favours vertical, mission-critical systems of record with proprietary data. However, simpler point solutions are facing greater disruption and require deeper diligence.
- European mid-market PE software transaction volumes were resilient in 2025 with 129 new buyouts completed, valuations rebounding to ~6.7x ARR, and software-focused GPs raising >€9bn despite macro volatility.
- 2026 has started more slowly as AI drives asset repricing, with a “flight to quality” favouring vertical, mission-critical systems of record with proprietary data and embedded workflows.
- AI may impact SaaS economics as companies transition from seat-based to hybrid/usage pricing; gross margins may fall (LLM costs) but EBITDA margins can improve via AI-led productivity enhancements, especially in R&D.
- Deal activity in 2026 may slow with extended diligence periods; top assets will still command premium multiples but weaker point solutions/horizontal tools face a more challenging exit environment.
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