Foley & Lardner LLP partner Louis Lehot is featured in the Daily Journal‘s Capital & Counsel newsletter discussing AI disruption on the software-as-a-service (SaaS) market and effect on M&A activity.
Lehot highlighted that private equity firms are seeking to restructure or exit legacy tech investments and are increasingly focused on AI-native investments or portfolio add-ons.
“In tech M&A, it’s a tale of two markets right now,” he explained. “There are AI-native companies that are growing in triple digits that can command large valuations based on high multiples, and non-AI-first legacy software-as-a-service companies that don’t.”
“The latter have to do a ‘pivot’ to be AI-native and kickstart AI-led growth,” Lehot continued. “Enterprise software companies that came to market before AI and offered software as a service, which recognizes revenue on a monthly or annual subscription basis, cannot command the same multiples that private equity firms paid to get in and need to be restructured.”
“Overall market volume has fallen off substantially because of the SaaS-pocalypse,” Lehot added. “There are still deals happening, just fewer of them.”
