AGC's 2024 PE Rankings, 2025 Software & Macro Outlook

We are pleased to share with you our 2025 Tech Capital Markets Update, covering the structural shifts underway in software, AI, and the broader economy. After 44 years of hypergrowth, the software world is facing a structural slowdown inclusive of market penetration and saturation, wrestling with the realities of intense competition, shifting macroeconomic conditions, and the post-COVID normalization of enterprise spending. While AI has injected new life into the sector, the industry is still searching for its next great inflection point.

M&A activity has dropped sharply, with Q1 2025 on pace to be 61% below pre-COVID levels. LPs at leading venture and private equity firms report that their DPI in '23 and '24 has fallen to just 10% of the highs they witnessed in '21 and '22, reflecting the broader slowdown in liquidity and exits – the good old days ☺. There are plenty of reasons: underperforming companies, high seller expectations, continuation funds, AI uncertainty, and a macro environment that is limiting risk appetite. Private equity firms are holding onto their portcos longer, public strategics have been less active, and valuation expectations remain stubbornly high. But great companies are still commanding premium multiples—8-19x ARR, with a median of 12x. PE firms are sitting on $330B in dry powder, strategics need growth, and seller valuation expectations are adjusting. There are still bidding wars going on—but it won't be that easy forever. Even with a more challenging macro backdrop, M&A will rebound in 2025 and 2026 as capital needs to be deployed and consolidation accelerates. The best companies will always find a way to shine but only the very best will secure premium exits.

For all the negativity and uncertainty, there are enormous opportunities and reasons for hope and celebration. More than ever, the U.S. remains the land of individual opportunity and investment. The influx of human and investment capital into the U.S. surpasses that of the next closest country by many times. Right sizing the government will enhance our freedoms while reducing the burdens and risks of big government and mounting deficits. The U.S. government needs to stick to the mission of reducing the deficit from $2T to $1T for 2025. AGC, like the rest of the market, has taken its hits in '23 and '24, but Q1 '25 will be our best quarter in 2.5 years. Deal volume and closing values are up, median revenue multiple on our last four deals is 11x, and we are loaded for bear for a much better 2025.