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Tech M&A activity regained meaningful momentum in 2025, after two years of capital restraint and valuation recalibration. Deal value rose approximately 40% to nearly $4.9 trillion, one of the highest annual totals on record, and 80% of executives expect activity to remain steady or increase in 2026.
But the headline numbers can be misleading. The recovery is not uniform. Capital is concentrating around high-conviction assets with strong fundamentals, while average businesses face a more demanding buyer landscape. For tech founders with $10M+ in revenue considering an exit, that distinction matters.
This article covers 6 structural forces shaping the 2026 M&A environment and what each one means for how you position, time, and execute a process.
6 M&A trends shaping 2026
1. M&A activity is increasing, but selectively
Global M&A rebounded sharply in 2025, as mentioned previously. However, the recovery is concentrated, not broad.
January 2026 already offered a more nuanced read: deal volume for $100M+ transactions declined year-over-year amid macro uncertainty, while deals above $1 billion increased 10%, according to EY. Fewer transactions, larger commitments. Hence, buyers are being more deliberate.
The implication for founders: a rising market does not mean a rising floor. Demand is strong for the right assets and potentially subdued for the rest.
2. Software valuations are bifurcating, not rising across the board
This is arguably the most important trend for any founder thinking about timing.
Valuation multiples are not recovering uniformly. Companies with durable recurring revenue, strong unit economics, low churn, and measurable AI integration are potentially commanding higher multiples. Businesses with high burn, weak retention, or unclear AI positioning, on the other hand, might face downward repricing.
PwC notes that investors are prioritizing sustainable growth and fundamentals in a higher-rate environment, and the gap between top-tier and average software assets could be widening.
Founders should not assume a rising market lifts their valuation. The bifurcation is real, and it is shaping buyer conversations now.
3. Private equity has capital to deploy, and a backlog to resolve
PE dealmaking rebounded strongly in 2025. Buyouts and growth deals above $500 million increased approximately 44% to more than $1 trillion in value.
But for founders, the more important dynamic is the exit overhang. Approximately 13,000 sponsor-backed companies remain in private hands, with an estimated 55% held for five or more years, well beyond typical fund timelines. Funds that acquired companies in 2019 to 2021 at elevated entry valuations are now under pressure to deliver returns.
This creates two forces that run in opposite directions. More PE buyers are actively looking to acquire quality assets to deploy capital and build platforms. At the same time, more competing assets are coming to market as funds look to exit aging positions.
For founders, the window of differentiation is real but not indefinite. A structured, well-timed process is critical to capture PE attention before the market gets crowded.
4. Take-privates are creating a new exit path for mid-market tech
2025 saw several landmark take-private transactions that are reshaping expectations heading into 2026.
The largest sponsor-led take-private in history closed last year: the $55 billion acquisition of Electronic Arts by a consortium of PE and sovereign wealth funds. Dayforce was taken private in a $12.3 billion deal by Thoma Bravo. These are not isolated cases. PE firms and sovereign wealth funds, armed with significant dry powder, are targeting category-leading software platforms they view as undervalued in public markets.
Here is the connection to mid-market founders: the same PE firms executing these take-privates are the ones building software platforms through a series of acquisitions. The take-private becomes the platform. Mid-market companies become the bolt-ons.
When Thoma Bravo takes Dayforce private, it is not just acquiring one company. It is creating a consolidation vehicle that needs complementary products, adjacent capabilities, and geographic coverage. Those are mid-market acquisitions. The platform acquisition at the top of the stack increases demand for quality bolt-on assets below it.
There is a second effect: the surge in take-privates signals that PE has strong conviction in software assets at current valuations. That conviction filters down. It increases competition among buyers for quality mid-market assets, which has a direct impact on valuation and process dynamics for founders who run a structured sale.
5. Not all tech sectors are equal: where buyer conviction is concentrated
Technology accounts for 84% of TMT deal volumes, but within tech, buyer appetite is not uniform. That distinction matters for how founders position their businesses.
The subsectors commanding the most activity and premium valuations in 2026 are:
- Cybersecurity: structural demand, recurring revenue, and deep enterprise integration
- Vertical SaaS: mission-critical applications with high switching costs and strong net revenue retention
- AI-native infrastructure: models, data pipelines, and compute-adjacent software
- Cloud and data center infrastructure: fueled by AI workload demand and the race to scale compute capacity
[Read: AI Valuation Multiples, Most Valuable Industries in 2025]
By contrast, legacy software companies where AI threatens to replicate core functionality at lower cost face the most buyer skepticism… or a new wave of perceived opportunity. According to Morrison Foerster's Tech M&A Survey from December 2025, the top subsectors for dealmaking over the next 12 months are AI, cybersecurity, and enterprise and logistics software.
On the other hand, however, there is a secondary dynamic worth noting: some acquirers are actively targeting legacy software companies at discounted valuations, with the intent to apply AI to improve the business and create a relatively quick exit. For founders in that category, understanding how buyers frame that opportunity is important in a sale process.
6. AI is reshaping deal logic, and raising the diligence bar
Bain's survey of over 300 dealmakers shows AI adoption in M&A more than doubled in 2025. Roughly one in three buyers are now systematically deploying or redesigning processes around AI.
But the more consequential development for founders is what is happening on the other side of the table. One in five strategic dealmakers report having walked away from a deal because of the anticipated impact of AI on the target's business model.
AI positioning is no longer just an upsell narrative. It is a deal risk variable. Buyers will interrogate whether AI threatens to replace what your product does or if it creates opportunities, whether you have proprietary data advantages, and whether the AI integration has demonstrable commercial impact.
What founders can expect in 2026
The rebound in M&A activity creates opportunity, but not equally for everyone. Founders who prepare thoughtfully will benefit. Those who rely on market momentum alone will not.
This environment rewards operational discipline and strategic clarity. Clean financials, strong KPIs, and a coherent growth narrative will matter more than broad market optimism. Here is what the current environment means in practice.
1. Quality is commanding higher tier multiples
Not every company will see valuation expansion. The bifurcation is real, and buyers are paying up selectively for businesses with:
- Durable recurring revenue and strong NRR (net revenue retention)
- Clear path to profitability or strong unit economics
- Defensible market positioning in a high-conviction sector
- Credible AI integration tied to measurable business impact
2. Private equity activity creates leverage, only in a structured process
There is genuine buyer interest in quality mid-market tech assets. But leverage only materializes in a well-run process. A curated buyer list, disciplined outreach, controlled information flow, and thoughtful negotiation sequencing are what convert interest into premium terms.
Without structure, founders risk reacting to inbound interest rather than shaping the outcome. With 13,000+ sponsor-backed companies competing for exits, differentiated positioning and timing matter more than ever.
3. AI positioning must withstand diligence, or it kills the deal
Technology remains central to deal strategy, particularly as AI adoption accelerates. With one in five strategic buyers having walked away from a deal due to AI risk concerns, a founder's AI narrative is now a critical deal variable, not just a marketing point.
Buyers will interrogate whether AI threatens to replace what your product does, whether you have proprietary data advantages, and whether the integration has measurable commercial impact. A superficial AI label will not survive diligence. A clear, evidence-backed narrative will.
Read: The AI Wrappers Debate: How to Value Them?
4. Macro volatility is a real wildcard
The optimistic macro picture at the start of 2025 gave way to slowdowns driven by policy disruption and rate uncertainty. January 2026 already showed mid-market restraint. Founders should not simply assume a smooth execution window.
Preparation, process readiness, and the ability to move decisively when conditions align will be as decisive as asset quality. The founders who are ready when the window opens will be the ones who capture the best outcomes.
Disciplined execution still wins
M&A activity is picking up going into 2026. But this is not a return to the easy-money environment of 2021. Buyers are careful, selective, and increasingly analytical, including about AI risk. They are willing to pay valuations on the higher end, but only for businesses that have earned them.
For founders, that means preparing with intention matters more than ever. At L40, we work closely with founders and boards to run disciplined, competitive processes, from positioning and valuation through diligence and close, ensuring every step is handled with focus and precision to secure the best outcome. Contact us.
