Over the past year, software companies in the public markets have seen a meaningful contraction in valuation multiples. This has been driven less by a deterioration in underlying fundamentals, and more by a convergence of macro and sentiment-driven factors. Higher interest rates have placed downward pressure on growth asset valuations more broadly, while a wave of high-profile AI product launches has heightened investor uncertainty around competitive positioning, disruption risk, and near-term monetisation. Against this backdrop, public market investors have become increasingly cautious, resulting in a sell-off across large parts of the sector.
As a result, software multiples in both the US and UK are now trading below long-term averages, even for sub-sectors with strong adoption dynamics and long-term structural tailwinds
In our view, this dislocation reflects cyclical pessimism rather than a structural change in the attractiveness of software businesses. The core drivers of demand, digital transformation, automation, and data-led decision making remain firmly intact. Enterprise customers in particular, continue to prioritise software investment as a means of driving efficiency, resilience, and competitive advantage.
Public Market Volatility vs. Private Market Reality
While sentiment in the public markets has softened, the picture in the private M&A and growth equity markets is notably different.
At Rickitt Mitchell, we continue to see strong demand and competitive tension for high-quality software assets. Well-positioned businesses with defensible models are still achieving attractive valuations, despite the broader public market valuation reset.
This divergence highlights an increasingly important distinction: valuations are no longer rising simply because a business is classified as “software.” Instead, buyers and investors are paying premiums for demonstrable quality, resilience, and strategic relevance.
Which businesses are still commanding premium valuations?
Through our ongoing dialogue with strategic acquirers and financial sponsors, several characteristics consistently underpin strong valuation outcomes:
Mission-critical products with proprietary data
Businesses that sit at the heart of their customers’ operations, particularly those underpinned by proprietary datasets continue to attract significant interest. These assets benefit from deep competitive moats, high switching costs, and strong defensibility. Increasingly, acquirers also view such datasets as foundational IP, with AI acting as a lever to further enhance productivity and value creation.
Strong customer retention
Despite broader market “noise,” retention remains a core focus for buyers. While revenue models are evolving and traditional metrics may need to be interpreted differently, high retention continues to provide validation of product value, business stability and long-term sustainability.
Resilient and visible revenue models
Predictability matters. Businesses that can demonstrate clear revenue visibility continue to be rewarded, even as investors show greater flexibility around how that visibility is achieved. Subscription models remain attractive, but alternative recurring or repeatable revenue structures are gaining strong demand where they are well supported.
High growth but not at the expense of huge cash burn
Growth remains a critical value driver, but not at any cost. Investors are increasingly selective, favouring businesses that combine strong growth with disciplined cash management and credible margin potential. Clear routes to profitability in the short to medium term materially enhance valuation confidence.
