Buyout groups hunt for software bargains after ‘SaaS-pocalypse’

Private equity takeovers of software groups are at a turning point as investors hunt for bargains among companies at risk of being disrupted by AI, the co-founder of one of the buyout industry’s biggest players has said.

The valuations of software companies collapsed earlier this year amid fears about how AI will disrupt their businesses. However, markets have underestimated its potential to help many companies become more efficient and grow faster, according to Dipanjan “DJ” Deb, co-founder of Francisco Partners, a technology-focused private equity firm with $75bn in capital raised.

“AI will not kill the software industry, but it will create a dispersion of winners and losers. For some companies, their [long-term valuations] are permanently impacted, but for others people will realise that not only do they have strong moats, but they will be able to have a greater market to sell to,” Deb told the FT.

His comments come as the San Francisco-based firm completed the first large fundraising for a software-focused PE group since AI worries fuelled a February market sell-off.

Francisco Partners raised $21bn in new cash since the beginning of the year in a fundraise that exceeded its $18bn target. Kirkland & Ellis advised on the capital raise.

The firm was set up by Deb and a group of investors including the late technology banker Sanford Roberts in 1999. It held a first close for the fundraising following February’s “SaaS-pocalypse”, in which software valuations tumbled after the release of Anthropic’s Claude Code AI tool raised fears about the future of many tech firms.

The successful fundraising underscores some institutional investors’ willingness to plough new cash into a sector where takeover multiples have fallen and growth rates and profit margins may now be underestimated, according to Deb.

“If you look at the history of private equity, when you buy right, you tend to make a lot of money — and valuations are at their lowest level in a long time,” he said.…