Public software has had a poor twelve months. The S&P Software and Services Select Industry Index is down by roughly 21.6% over the period, while the S&P 500 is up by around 14.3%. That gap is now becoming evident in private market pricing.

Despite the pressure on valuations, transaction volumes have held up. Software Equity Group's 2025 data shows SaaS transaction volumes roughly flat compared to 2024. Capital is available and buyers are active, but the basis on which they are making investment decisions has changed.

Buyers will likely focus their attention on deciding if AI makes a business more defensible or more replaceable. A vertical SaaS platform that embraces AI should become stickier and harder to replace. A horizontal platform, by contrast, may struggle to offer the same level of customisation and therefore face a more uncertain future.

Most buyers of SaaS companies are currently pricing in the uncertainty created by AI. Businesses where AI exposure is unclear are seeing larger differences between buyer and seller valuation expectations, longer diligence cycles and less favourable deal terms.

What holds up under buyer diligence is high net revenue retention, gross margins that demonstrate real operating efficiencies, not just revenue growth funded by increasing costs, usage patterns that show reliance on a platform and, stable revenues that are not dependent on a single contract renewal.

Positioning the narrative alone will not bridge the difference between buyer and seller expectations. A management team that talks about AI as an “opportunity” without clearly demonstrating its impact on unit economics or competitive positioning risks losing credibility during a transaction process.

SaaS businesses that are deeply embedded, with high switching costs, clear pricing power, and a credible AI position will attract strong interest. Public markets are already taking this into account. Private companies will also need to address the impact of AI on their businesses if they want to achieve the valuations they believe they deserve.

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