Software LBO multiples peaked in 2021. The 2021 and 2022 vintages are now reaching their first refinancing events, and the capital structures assumed at the LBO are being tested against what private credit will lend today. The gap can be material and is shaping decisions across the software M&A market.

Most PE backed software LBOs carry five to seven year debt terms. A business bought in 2021 at an elevated multiple, financed with leverage interest rates near historic lows, is now facing refinancing in a different rate environment and against a different lender appetite. Private credit, which absorbed much of the bank debt market, is underwriting more conservatively than it did eighteen months ago.

The consequence is a structural gap between the leverage capacity assumed at acquisition and what is currently available. Closing that gap requires additional equity or an accelerated sale, and each option has a cost that shows up in the eventual returns achieved by PE investors.

PE funds are addressing these issues early on. Where a business is performing well, continuation funds and PE-to-PE sales are being explored ahead of any refinancing deadline. Where performance is weak, some PE firms are accepting lower pricing to exit cleanly rather than injecting additional equity to extend the holding period. We therefore believe that we will see exits moving into the H2 2026 and H1 2027 sale calendar that would otherwise have come to market in 2027 or 2028.

For buyers, this shifts the opportunity. More software assets will be available on timelines that reflect refinancing pressure rather than the strength of the exit market particularly for PE funds with 2021 vintages which face a shorter decision window. For founders running independent businesses in the same sector, competitor roll-ups are more likely to be broken up or sold than extended.

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