Permanent-capital holding companies have emerged as the leading bidders for small, profitable, founder-owned software companies in Latin America, a segment too small for most traditional private equity funds, industry participants said.

Constellation Software’s Volaris announced the acquisition of L5 Networks on 24 August, adding the Brazilian cloud communications provider. L5 will retain its name, brands, and leadership. Terms were undisclosed. Volaris’ Latin American portfolio is Constellation’s largest in the region.

The transaction reflects the growing role of holding companies in software M&A, with Volaris exemplifying the long-term buy-and-hold model, said Gabriel Cardoso, founder of São Paulo-based M&A advisory firm Quintes Capital. Such buyers evaluate a target’s customer retention, cash generation, and the resilience of its competitive position before acquiring it, he added.

The pattern extends across the region. Montreal-based Valsoft bought Brazilian public healthcare software provider Fast Medic in January, a year after entering Latin America through notary software company VHL Sistemas. Constellation’s Vesta Software acquired Colombian procurement platform Suplos in February and Uruguayan ERP company Datalogic in 2022. Canadian holding company Runtime Enterprises made its first acquisition in the region this year, buying Chilean conversational artificial intelligence company Elipse.ai.

Banyan Software acquired São Paulo-based insurance software provider ITG on 3 September for undisclosed terms, its second in the sector in Brazil. Banyan paid a reported BRL 270m (USD 53m) last year for the first, i4pro, whose backers had bought in for around BRL 65m in 2019.

Holding companies are rapidly expanding across Colombia, Mexico, and Chile, broadening the acquirer universe, said Steve Jones, regional managing director for Latin America at software M&A advisory firm Corum.

What has changed is not only who is buying but what is available to buy, market participants said. Latin America has moved from a universe of early-stage startups toward a growing set of companies with enterprise adoption, recurring revenue, and multi-country operations.

“A larger pool of sophisticated international buyers is meeting a much more mature pool of regional assets,” said Andrea Balletbó, head of growth and partnerships at cross-border M&A advisory firm L40°, which advised Elipse.ai on its acquisition by Runtime.

Too small for PE funds

Thiago Rocha, founder and CEO of São Paulo-based B2B software holding company Canopy, said Constellation is a frequent bidder in software sale processes in Brazil, with other permanent-capital holding companies including Valsoft, Arcadea, and Banyan Software participating in selected deals. A typical process draws one to three rival bidders.

“Competition with PEs and strategic buyers is rare,” he said.

The absence of sponsors is structural rather than cyclical. PE funds raise capital in US dollars and need to deploy at scale, said Lucas Fiuza, co-CEO of Quick Soft, a Brazilian software company backed by search fund Tractus Capital. Fund economics mean many investors will not look below BRL 20m in EBITDA, roughly USD 4m, placing the threshold above most of the market, he added.

Views differ among market participants over the presence of strategic buyers. Fiuza said most Brazilian software transactions over the past year were driven by strategic buyers rather than financial sponsors, with Quintes Capital’s Cardoso and White & Case M&A partner Rodrigo Dominguez also describing strategics as highly active. Rocha, whose firm buys mature and profitable businesses, said he rarely encounters them. Corum’s Jones said global sponsors are entering the region for the first time alongside a core group that has operated there for years.

Brazil’s software sector is overwhelmingly small, Rocha said, citing industry association figures putting fewer than 6% of the country’s 12,066 software companies above 100 employees. Competition for the largest names is fierce, drawing global and local sponsors, strategics, and IPO candidates.

“Mid-market is full of high-quality assets that combine growth, profitability and resilience, and that trade with a 30%-50% discount,” Rocha said.

Who shows up sets the price

When search funds and holding companies are the main buyers in a process, EBITDA multiples typically range from 7x to 10x, with premium assets occasionally commanding 11x-12x, Fiuza said. The entry of a strategic buyer can lift multiples to 10x-15x, with some deals reaching 16x-17x.

Fiuza, who described Quick Soft as a strategic rather than a financial buyer, said strategics typically outbid financial acquirers by 20%-25%, although Jones said that premium has been narrowing.

Buyer composition, rather than asset quality, is often the biggest driver of valuation. Capturing a premium requires a broadly marketed process that brings multiple bidders to the table, Jones said, as buyers price differently when they know they are competing.

Limited liquidity in traditional capital markets has also favored holding companies, which can buy cash-generative businesses and hold them without a defined exit, Cardoso said. They can pay attractive multiples because they underwrite over horizons extending to 10 years rather than five or six, he added.

The most attractive targets operate in distinct verticals or niches, reducing direct competition and customer churn, Cardoso said. Gross margin discipline is equally important: founders face constant pressure to customize products, but yielding too often can turn a software company into a services business.

Manuel Amor, partner at L40°, said profitability is the threshold question. A heavily loss-making business may still appeal to a particular strategic buyer but is likely to deter most sponsors, holding companies, and other financial acquirers.

Amor said the conventional financial-versus-strategic split no longer describes the market. “For a founder in Latin America today the more useful distinction is between strategics, PE platform investors, PE-backed add-on buyers, and permanent-capital software holdcos, because each of them can look at exactly the same company and see a different source of value.”

The 10x multiple hangover

Founder expectations have moved closer to market reality over the past 18 months. During the 2021-2023 boom, sellers routinely sought valuations of 5x revenue, while some companies sold to strategics at as much as 10x, Fiuza said. Today, many view 3x revenue as a strong outcome and recognize that EBITDA margins must also factor into a valuation.

L40°’s Balletbó said 10x remains a common expectation despite most private software businesses trading at closer to 3x-6x annual recurring revenue (ARR). Headline valuations often overstate proceeds, as rollover equity, stock, earnouts, and retention incentives can materially reduce cash at closing.

Rocha said sellers motivated to transact have adjusted to lower SaaS multiples, while others continue to hold unrealistic expectations.

The adjustment has been uneven, said Dominguez, describing a shift away from the growth-at-any-cost mindset that characterized the sector a few years ago. Quality businesses with differentiated technology can still command premium valuations, he said, but the gap between those companies and the rest of the market has widened considerably.

Long-term ownership with an IPO plan

The appeal of holding companies lies in their lack of a fixed investment horizon. Founders seeking liquidity but expecting to spend another 10 to 20 years building their businesses often prefer search funds and holding companies, Fiuza said. Those looking for a faster exit, by contrast, tend to favor strategics, which pay more and enable a quicker transition.

“Private equity buyers usually tell founders what to do,” Rocha said, adding that Canopy works alongside them instead.

Permanent capital is a strategy rather than a promise. Rocha, who helped take Sinqia public in 2013 when the company was still called Senior Solution, said Canopy has prepared for an eventual IPO from the outset, including Deloitte audits and USD 100m raised for acquisitions.

As a result, Canopy focuses on acquiring great businesses rather than cheap ones, he said. “Canopy was founded in a context where AI changes the playing field: there’s no space for holdcos that milk the cow and neglect the future.”

For founders weighing whether to wait, Balletbó said the arithmetic has changed.

“A realistic M&A exit can create substantially more liquidity than holding indefinitely for a valuation that may never materialize.”