Podcast Summary: The Path to Exit – Episode 36

2026 Software M&A Outlook: Valuations, Buyers, and What’s Changed

Release Date: January 13, 2026
Host: Mike Lyon, Founder & Managing Director, Vista Point Advisors
Guest: Jeff Koons, Managing Director, Vista Point Advisors

Episode Overview

This episode dives into major trends shaping the software and SaaS M&A market, with a focus on how 2025’s events inform expectations for 2026. Mike Lyon and regular guest Jeff Koons examine deal volumes, changes in the buyer landscape, AI’s ongoing impact, and what tech founders should consider when planning for an exit.

Key Discussion Points

1. Deal Activity and Market Trends in 2025

• Deal Volume and Size:
  • The number of M&A deals was up slightly, but aggregate deal value increased significantly, driven by several “megadeals.”
  • Founder-led SaaS businesses saw “pretty stable” activity, with some improvement from previous years.
    • “Within our world, founder-led bootstrapped [businesses] were largely consistent to slightly better, with some nuances.” (Jeff Koons, 00:52)

2. The Buyer Landscape Rebounds

• Public Strategic Buyers Re-Enter:

  • Notably, 2025 brought a “strong rebound” in interest from public company strategic buyers for SaaS businesses.
    • “2025 really marked a strong rebound of public company strategic buyer interest… actually bidding up evaluations.” (Jeff Koons, 01:52)
  • In 2023 and 2024, most deals relied on private equity (PE) buyers or PE-backed strategics, which limited seller options and competitive tension.
  • “It’s nice to have that third leg of the stool back…Public deals are typically full liquidity, so that’s a different option for some of our founders.” (Mike Lyon, 02:32)

• Impact of Lower Rates:

  • Lower interest rates are expected to further embolden public buyers.
    • “…as rates continue to go lower…I expect their stock prices will go higher and you’ll see them be even more aggressive.” (Mike Lyon, 02:32)

3. Debt Financing Environment

• Recovering Debt Confidence:
  • Debt financing became less risky and more widely used in transactions compared to previous years.
    • “Felt like…debt financing…did not feel nearly as risky as 23 and 24…more positive risk associated with debt financing.” (Jeff Koons, 03:17)
  • Lenders and buyers are more comfortable, contributing to more stable deal processes.

4. The ‘Retrade’ Risk and PE Buyer Tactics

• PE Buyer Behavior:
  • 2025 saw PE buyers more aggressively attempting retrades (renegotiating terms late in the process), especially when founders missed Q2 projections.
    • “PE buyers felt a little more emboldened to try and retrade at the last minute.” (Mike Lyon, 04:13)
  • The risk tapered off as the year progressed and market uncertainties diminished.

5. Private Equity "Coming Down Market"

• Some large PE funds, usually targeting bigger deals ($250–500M+ EV), showed increased appetite for slightly smaller businesses ($175M EV), motivated by slower activity at the mega-deal level or return to roots for higher growth.
  • “…firms…focused on businesses of 250, 400, 500 million plus…participate in a process for 175 million enterprise value company.” (Jeff Koons, 05:25)
• This trend is expected to lessen in 2026 as bigger deals come back.

6. The AI Question for Vertical SaaS

• AI as a Threat?
  • Contrary to early fears, AI did not “wreck” vertical SaaS as some predicted. Instead, it has been a cost reducer, especially in customer support and operations.
    • “AI has made some of these businesses more efficient…A catalyst to drive expenses down rather than wrecking these vertical SaaS firms.” (Mike Lyon, 06:48)
  • Founders remain concerned about long-term risks, leading to heightened interest in liquidity and exits.
• Where AI Delivers—and Where It Doesn’t:
  • Large Language Models (LLMs) have yet to show disruptive value in complex B2B/vertical software contexts compared to “purpose-built” solutions.
    • “They [AI models] have consistently been unable to deliver specific business results in a verticalized context.” (Jeff Koons, 07:50)
  • Buyers expect founders to have a thoughtful AI strategy but not develop their own LLMs.
    • “You need an answer for it, but you don't need to be spending $10 million…” (Mike Lyon, 09:02)
• Rise of Transactable AI Businesses:
  • Emergence of “at scale” AI SaaS businesses ($7–10M ARR) as actual acquisition targets.

7. Shift in Retention Metrics: NRR to GRR

• Investment Criteria Change:
  • PE buyers are focusing more on Gross Revenue Retention (GRR) as a key metric, viewing it as a conservative indicator versus Net Revenue Retention (NRR), which includes upsell expansion.
    • “We saw buyers…shift their focus from the NRR retention metric to the GRR retention metric.” (Mike Lyon, 09:26)
  • Regression analysis shows GRR better predicts enterprise value in today’s market.
    • “The R squared on gross retention was…materially higher than the net [retention].” (Jeff Koons, 10:47)

Looking Forward: The 2026 Outlook

1. IPO Window and PE Exits

• Big Banks Staffing Up:

  • Major investment banks (Goldman, Morgan, Merrill) are hiring aggressively, anticipating an uptick in IPOs and multibillion-dollar PE exits.
    • “Big IPO shops and then a lot of what will be these very large private equity exits…bank staff up in preparation.” (Jeff Koons, 11:48)

• PE Liquidity Pressures:

  • Many PE firms have yet to return capital to LPs after buying at 2020–21 highs; pressure is mounting to generate exits. This will drive M&A and IPO activity.
    • “They haven’t been able to exit…at an attractive return. So they've held them. It's now to the point…LPs…want their liquidity.” (Jeff Koons, 12:19)

• Implications for Founder-Led Companies:

  • As large PE funds return to bigger deals, some competition will leave the mid-market founder-led space, potentially easing M&A dynamics but also possibly reducing buyers.
    • “Some of the larger private equity firms…they're going to pivot back to those bigger deals.” (Mike Lyon, 13:35)
  • Exits by big funds means recycled capital and more demand for new investments—overall a positive trend.

2. Return of Growth Focus—but Balanced

• Growing focus on growth rate (over pure profitability) as rates fall, but shift will be gradual. Founders should continue to balance growth with strong unit economics.
  • “Shift to more of a growth on environment…will expect to see that change a little bit.” (Mike Lyon, 15:01)

3. Vertical SaaS Fundamentals Remain Strong

• Defensible Value & AI:
  • Vertical SaaS enjoys enduring strength due to positive, clear ROI; AI is not yet disruptive enough for complex B2B use cases.
    • “The fundamentals underpinning good vertical SaaS businesses are still incredibly valuable because of that economic reality.” (Jeff Koons, 15:51)
  • No evidence of “AI vapor” displacing businesses with clear economic value.
• Key Valuation Drivers Continue:
  • Growth rate, GRR, NRR, profitability, and TAM remain core in valuation and deal-making.

4. Capital Deployment and Founder Exits

• Founder-led SaaS will remain an attractive, competitive market, backed by strong fundamentals and steady capital availability, even as mega-deals reemerge.
  • “Our expectation for founder-led software businesses…It’s going to continue to be a strong market next year.” (Mike Lyon, 18:01)

Notable Quotes & Timestamps

• “Within our world, founder-led bootstrapped things were largely consistent to slightly better, with some nuances in 2025.” – Jeff Koons (00:52)
• “2025 really marked a strong rebound of public company strategic buyer interest.” – Jeff Koons (01:52)
• “As rates continue to go lower…I expect their stock prices will go higher and you’ll see them be even more aggressive…and confident about wanting to do M&A.” – Mike Lyon (02:32)
• “AI has made some of these businesses more efficient…driven the cost of goods sold…But it certainly didn't play out exactly the way some of the fears were in the beginning of last year.” – Mike Lyon (06:48)
• “The models just aren’t good enough yet or the implementation is not good enough yet for them to actually drive meaningful value [in B2B SaaS].” – Jeff Koons (07:50)
• "We saw buyers, mainly PE firms, shift their focus from the NRR retention metric to the GRR retention metric." – Mike Lyon (09:26)
• "The R squared on the gross retention was like materially higher than the net revenue [retention], which was just really interesting..." – Jeff Koons (10:47)
• “Big IPO shops and then a lot of what will be these very large private equity exits…bank staff up in preparation in anticipation of that glut of deal volume happening.” – Jeff Koons (11:48)
• “The fundamentals underpinning good vertical SaaS businesses are still incredibly valuable because of that economic reality.” – Jeff Koons (15:51)
• “Our expectation for founder-led software businesses…It’s going to continue to be a strong market next year.” – Mike Lyon (18:01)

Important Timestamps

| Time | Topic | |---------|----------------------------------------------------| | 00:52 | 2025 deal volume and stability in founder-led SaaS | | 01:52 | Public strategic buyer rebound | | 03:17 | Improved debt financing environment | | 04:13 | PE buyers and retrades | | 05:25 | Large PE firms pursuing smaller deals | | 06:48 | AI’s (modest) impact on vertical SaaS | | 09:26 | Shift to GRR as a leading retention metric | | 11:48 | Big banks hiring for expected IPO/exit volume | | 13:35 | How mega-exits affect mid-market founder deals | | 15:51 | Enduring value and fundamentals in vertical SaaS | | 18:01 | 2026 market outlook for founder-led software |

Tone & Takeaways

Conversational and pragmatic, the episode provides practical guidance and honest perspectives for founders weighing the timing and process of a software company exit. Jeff and Mike emphasize that, despite change, business fundamentals—measurable ROI, retention, growth, and scale—remain the bedrock. Founders should stay alert to shifts in buyer priorities and macroeconomic signals but can feel confident about the overall robustness of the current and upcoming M&A landscape.