After analyzing the most significant deals in 2024 and 2025, our research has led us to further explore the current M&A landscape.
In February, Ernst & Young (EY) recorded 35 technology transactions over $100 million, a 25% increase from the prior year. While total deal value fell by 36 percent, the shift reflects a move away from large-cap, higher-risk acquisitions and toward more focused, mid-sized opportunities.
Buyers are concentrating capital in areas with clearer fundamentals and stronger execution potential. Vertical SaaS, infrastructure software, and AI-native platforms are leading the field. These companies often combine recurring revenue with practical applications, making them attractive to both strategic and private equity buyers.
This article examines the main factors influencing tech M&A in 2025, including the economic backdrop, emerging deal structures, sector-specific activity, and what these shifts mean for founders.
After a slower 2023, technology M&A is gaining traction. In February, EY recorded 35 tech transactions over $100 million, a 25 percent increase from the prior year. Though overall deal value dropped by 36 percent, that decline reflects reduced appetite for large-cap, high-risk acquisitions. Buyers are turning to the middle market, where valuations are more manageable and fundamentals more visible.
Activity is highest in vertical SaaS, infrastructure software, and AI-native platforms, segments with strong revenue retention, embedded technologies, and clear end-user demand. Strategic acquirers and private equity firms are both active, but their mandates are narrower. Fit, cash flow visibility, and integration potential are now central to deal selection.
We review current M&A patterns in tech, with input from EY, Goldman Sachs, PitchBook, Deloitte, and Reuters, focusing on pricing, regulation, sector exposure, buyer strategies, and founder-level implications.
While deal activity remains cautious, the prospect of rate cuts and regulatory easing later in the year is prompting buyers to re-engage. Potential for more affordable debt financing could accelerate deal flow in the second half of 2025, particularly for recession-resilient targets.
Ernst & Young (EY) notes that “the Trump administration’s deregulation efforts and pressure to potentially reduce interest rates sooner than later in the year may lift the M&A market,” especially for targets that perform well in down cycles.
Trump has publicly pushed the Federal Reserve (Fed) to lower rates. While the Fed remains independent, these signals have shaped expectations, particularly among buyers relying on debt financing.
On the other hand, if you’re asking yourself, what about tariffs? We addressed the potential impact of tariffs in SaaS deal-making through this article, to conclude that among all industries, SaaS remains among the most resilient.
Valuations have reset over the past 18 months, and buyers are increasingly selective. Many sellers remain anchored to 2021 pricing, which has slowed some transactions. But instead of walking away, more buyers are relying on structured terms to bridge the gap.
Earnouts, deferred consideration, and equity rollovers are now standard components of mid-market tech deals. These approaches help manage uncertainty around near-term performance while aligning interests over time. They also allow founders to retain equity in future upside, while giving buyers a clearer framework for assessing value.
Tech deals, especially those with cross-border elements or platform implications, have faced more scrutiny in recent years. Issues around data security, antitrust, and foreign ownership have influenced both timing and feasibility.
However, 2025 has brought signs of flexibility. For example, Google’s $32 billion acquisition of cloud security firm Wiz, initially shelved in 2024 due to antitrust concerns, was revived this year. According to Reuters, insiders see the transaction as more likely to be approved under the current administration, which has signaled a more pragmatic stance toward technology consolidation.
This evolving regulatory environment is encouraging more buyers to revisit paused conversations or explore deals previously considered too complex.
Read: SaaS and the Rule of 40
Buyers are targeting SaaS companies with strong retention, embedded AI features, and high-value use cases. These platforms often hold proprietary datasets and support critical workflows, making them durable acquisition targets.
Goldman Sachs notes that “generative AI is expected to unlock efficiencies that will be deflationary and potentially disruptive for some SaaS companies.” For others, particularly those with entrenched customer relationships, AI is creating competitive advantages and real M&A outcomes.
Lower public valuations are also pushing some software companies toward private transactions, expanding the field of available targets.
Infrastructure software and cloud services remain a priority for strategic and financial buyers. Demand for optimization, observability, and secure cloud operations continues to grow as enterprises invest in AI, data integration, and IoT.
EY reports that “companies are increasingly moving to cloud computing, expanding in the Internet of Things (IoT) domain and facing surging data demands due to artificial intelligence (AI) adoption.”
Security tools, in particular, continue to draw interest as acquirers look to build resilience into digital infrastructure portfolios.
Strategic acquirers are targeting companies that extend current capabilities or strengthen core offerings. The focus might be less on category expansion and more on integration readiness and execution efficiency.
Buyers are prioritizing revenue visibility and product-market fit. In many cases, acquisition rationale is tied directly to accelerating internal initiatives, such as AI development or workflow verticalization.
Private equity firms accounted for 43% of February’s tech deal value, according to EY. With capital on hand and a clear appetite for technology platforms, PE buyers are focusing on roll-up strategies and founder-led businesses with room to scale.
Many are seeking companies with strong gross margins, efficient growth, and leadership teams willing to stay involved through the next phase of growth.
EY notes that “private equity continued to be a key contributor of deals in February 2025… particularly in seeking exits.” The PE playbook now emphasizes longer hold periods, disciplined diligence, and thoughtful structuring.
Cross-border interest between the U.S. and Europe continues to grow, and it goes both ways.
U.S. mid-market tech remains attractive to international buyers, particularly those looking to enter the U.S. market or benefit from favorable exchange rates. At the same time, European tech companies are increasingly being acquired by U.S. buyers, who bring deeper capital pools and a strong appetite for strategic expansion. In many cases, a cross-border deal is the most compelling path forward, whether for growth, liquidity, or global reach.
In fact, Deloitte’s 2025 M&A survey found that “at least 85 percent of respondents have cross-border dealmaking near the top of their to-do lists.”
Buyers are starting diligence earlier and going deeper across cybersecurity, compliance, and leadership evaluation. These areas are now central to go or no-go decisions, even for smaller targets.
Reuters reports that “cyber threats are escalating in frequency and sophistication,” requiring both buyers and sellers to prioritize cybersecurity due diligence. This includes internal controls, third-party risk, and cloud posture assessments.
EY summarizes this as “selective activity in the mid-market.” Founders benefit from starting with a clear plan: who the right buyers are, what terms matter most, and what conditions need to be met before launching.
Implication for founders
Founders should work with an advisor to ensure they're well positioned before going to market, with clarity on alignment and the right buyer profile.
Valuation is only part of today’s discussion. Flexibility around terms—such as earnouts, equity rollovers, or seller notes—often drives alignment, particularly when performance forecasts are variable.
Goldman Sachs observes that “earnout provisions, collars, and equity rollovers offer innovative solutions tailored to the specific needs of each company.” These terms are helping close valuation gaps and allowing deals to move forward in a more measured market.
For founders, structure can protect long-term value, especially when the business has a clear path to growth post-close.
Implication for founders
Flexibility on terms often matters more than headline valuation, especially when the deal structure aligns with the founder’s objectives and the company’s long-term positioning.
Technology M&A is active, particularly in SaaS, infrastructure, and AI. Buyers are focused, terms are evolving, and execution requirements are higher. The strongest outcomes are coming from companies with clear positioning and a process built to meet today’s expectations.
L40° partners with founder-led technology companies to manage M&A processes with precision and discretion. We help founders engage the market with clarity and control, and we tailor every step to protect long-term value.
If you’re preparing for a transaction this year, we can help you define the right strategy. Contact us.
