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2025 M&A Outlook Software Channel

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March 19, 2025

Introduction

The software channel industry is undergoing a period of rapid consolidation, influenced by a range of factors beyond traditional revenue growth and market expansion. This white paper examines secondary drivers shaping mergers and acquisitions (M&A) in the sector, including multi-cloud complexity, industry specialization, cybersecurity challenges, AI investments, and evolving business models. Understanding these dynamics is essential for stakeholders looking to navigate an increasingly competitive and technology-driven landscape.

Key Drivers of M&A Activity

Multi-Cloud Complexity and Hybrid Environments 

As enterprises increasingly adopt multi-cloud and hybrid IT strategies, the need for seamless integration across platforms such as AWS, Azure, and Google Cloud has intensified. Many smaller channel partners lack the necessary technical expertise to provide comprehensive solutions, prompting larger firms to acquire specialized partners to enhance their service offerings. For instance, Synopsys's $35 billion acquisition of Ansys in March 2024 underscores how firms are expanding their capabilities in simulation software and systems design to address multi-cloud and hybrid IT challenges.

Industry-Specific Specialization 

The software industry is becoming more verticalized, with channel partners focusing on niche markets such as Fintech, healthcare, and cybersecurity. Larger companies are leveraging M&A to gain access to established customer relationships and deep industry expertise, enabling them to deliver specialized solutions tailored to complex regulatory and operational requirements. A notable example is Thoma Bravo's $1.8 billion acquisition of NextGen Healthcare in November 2023, which expanded its healthcare technology portfolio and strengthened its industry-specific service offerings.         

Cybersecurity and Regulatory Compliance Pressures

Cybersecurity threats and data privacy regulations, such as GDPR and CCPA, continue to evolve, increasing compliance costs for businesses. Many firms are acquiring cybersecurity specialists to strengthen their security postures and ensure compliance across jurisdictions. The $28 billion acquisition of Splunk by Cisco in March 2024 highlights how companies are addressing these concerns through strategic acquisitions that enhance their cybersecurity capabilities.

Margin Compression and the Need for Scale 

The rise of cloud marketplaces and direct-to-consumer sales models is putting pressure on traditional channel partners. In response, firms are turning to M&A as a means to achieve economies of scale, reduce operational costs, and enhance bargaining power with vendors. The $4 billion privatization of EngageSmart by Vista Equity Partners in October 2023 exemplifies how firms are using consolidation to optimize service delivery and maintain profitability amid market shifts.     

AI and Automation Investments

The widespread adoption of AI-driven automation tools for customer support, software deployment, and sales processes is reshaping competitive dynamics. Companies unable to develop these capabilities in-house are acquiring firms with AI expertise to remain competitive. The launch of Synopsys.ai Copilot in partnership with Microsoft in November 2023 illustrates how AI-driven automation is influencing acquisition strategies and enhancing software development capabilities.            

Talent Acquisition Challenges

The growing demand for skilled professionals in cloud architecture, cybersecurity, and AI is driving M&A activity. Many companies opt to acquire firms with strong technical teams rather than build talent in-house. This trend is evident in recent acquisitions by tech giants such as Microsoft, Google, and Amazon, which between February and August 2024 acquired AI startups including Inflection, Character.AI, and Adept to bolster their AI talent pools.

Vendor Consolidation Trends

Software publishers are streamlining their partner ecosystems, leading to increased M&A activity among channel partners seeking to maintain preferred vendor relationships. Smaller firms are merging to retain strategic positioning, access critical resources, and negotiate better terms. Synopsys's sale of its optical systems division to Keysight Technologies in September 2024 demonstrates how firms are restructuring to address vendor alignment and regulatory considerations.           

Managed Services and XaaS Transformation 

As businesses shift from transactional reselling to managed services and Everything-as-a-Service (XaaS) models, M&A has become a key strategy for firms transitioning to recurring revenue streams. Acquiring managed service providers (MSPs) enables companies to expand their service offerings and increase customer lifetime value. The October 2024 acquisition of Synopsys Software Integrity Group (SIG) by Clearlake Capital and Francisco Partners highlights how M&A is reshaping the managed security services landscape.

Data Analytics and Business Intelligence Demand 

Organizations are prioritizing real-time analytics and business intelligence to optimize operations and enhance decision-making. The acquisition of firms with advanced analytics capabilities enables larger companies to integrate data-driven insights into their offerings, strengthening their competitive positioning in the market.    

M&A Transaction Multiples in the Software Channel Industry

Understanding transaction multiples in software channel M&A is critical for evaluating deal structures and strategic decision-making. Latest trends indicate:

  • Enterprise Value to Revenue (EV/Revenue): Multiples range between 5x and 15x, depending on growth rates, profitability, and market positioning
  • Enterprise Value to EBITDA (EV/EBITDA): For high-growth software firms, multiples often exceed 20x, while mature firms typically trade between 10x and 15x
  • Recurring Revenue Premiums: Companies with strong recurring revenue models (e.g., SaaS and MSPs) command higher valuation multiples, often exceeding 12x revenue for high-growth firms        

Key Factors Influencing Multiples:

  • Revenue Growth Rate: High-growth firms (20%+ YoY) command premium EV/Revenue multiples, often above 12x, while slower-growing firms (below 10% YoY) may trade at 5x-8x
  • Gross Margin & Profitability: Companies with gross margins above 70% and strong EBITDA margins (20%+) attract higher EV/EBITDA multiples, often exceeding 15x-20x
  • Recurring vs. Transactional Revenue: SaaS and managed services models consistently fetch premium multiples compared to transactional software businesses due to their predictable cash flow
  • Competitive Differentiation & Moat: Firms with deep intellectual property, proprietary technology, or strong customer lock-in drive higher valuations
  • Buyer Type & Market Sentiment: Financial sponsors (PE firms) tend to pay lower multiples than strategic acquirers due to synergy-driven premium pricing

 

For more information, please reach out to project leads Kathleen Lauster, CFA, and Matthew Lapish, and Jeffrey Goodman. 

 

© Copyright 2025. The views expressed herein are those of the author(s) and not necessarily the views of Ankura Consulting Group, LLC., its management, its subsidiaries, its affiliates, or its other professionals. Ankura is not a law firm and cannot provide legal advice.