Private equity firms have substantially modified underwriting standards for technology transactions, prioritizing recurring revenue quality over raw annual recurring revenue growth. The shift reflects higher debt servicing costs, which have eroded traditional leveraged buyout return profiles across enterprise software verticals.
Valuation Multiples Normalize
Median enterprise value-to-revenue multiples for mid-market software buyouts have contracted from 2021 peaks. Sponsors are placing stringent covenants on debt structures, requiring portfolio companies to achieve profitability targets prior to executing add-on acquisitions.