The rise of AI agents has fuelled a growing narrative in the market that “SaaS is dead,” putting downward pressure on valuations of software companies. The impact is no longer confined to equity markets and is beginning to spill over into M&A activity in Japan.

One Tokyo-based investment banker this news service spoke to said that some transactions close to signing have collapsed, while others were unable to get off the ground due to the decline in IT valuations. A financer also shared the view, noting that the sharp decline of IT companies is making exits more difficult, and warning that some investments could ultimately result in losses.

A senior banker at a foreign investment bank echoed these concerns. “Investor sentiment has clearly turned negative,” he said. “The impact is not limited to SaaS companies but is spreading to related software names”. In one case, “a venture-backed company abandoned its IPO plans and was instead sold to a private equity firm, a banker at a Japanese boutique firm said.

Still, some believe the pessimism may be excessive. The senior banker noted that SaaS companies and system integrators operate under different business models and should not necessarily be equally affected. However, “Even if sponsors are willing to proceed, deals may not go ahead if LP investors take a cautious stance.”

A senior executive at a PE firm with exposure to SaaS gave a more cautious view. “The spread of AI agents could structurally challenge certain SaaS segments,” he said, “Unless a company has a clearly differentiated business model, there is a high risk that valuation gaps will prevent successful exits.”

That said, some expect the current dislocation to be temporary. The banker at the boutique firm added that conditions could stabilise within about six months, with valuations for system integrators likely to recover.

Scale of impact

The potential disruption of SaaS is significant for the M&A market. Global technology sector M&A reached USD 343bn across 1,933 deals YTD, marking a record high and a 144% increase compared with the same period last year, according to data compiled by Mergermarket.

Over the same period, global SaaS M&A activity totalled USD 278.8bn across 1,609 deals, also setting a new record. The largest transaction was the USD 110bn funding round of OpenAI in February, which also ranked as the largest deal across the broader technology sector.

Source: Mergermarket, data correct as at 19-Mar-2026

Regionally, SaaS M&A in Southeast Asia reached USD 12.5bn across 29 deals, representing an 8.5x increase year-on-year. The US recorded USD 218.6bn across 582 deals, the highest level on record, while Japan saw volumes rise 2.5x year-on-year to USD 2.5bn across 175 deals.

Source: Mergermarket, data correct as at 19-Mar-2026

Is SaaS really “dead”?

SHIFT, an IT services provider known for its aggressive M&A strategy and ability to integrate a wide range of businesses through PMI, argues that the narrative requires reframing.

“It is not that SaaS itself is dying, but rather that a part of how SaaS delivers value is becoming obsolete,” Hidetaka Kojima of SHIFT Growth Capital, the M&A arm of SHIFT said.

The value of traditional SaaS has been rooted in graphical user interfaces (GUI), through which users manually operate screens to input and process data. However, with the rise of AI agents, this “human-operated layer” is becoming less necessary, he said. “The model is shifting from providing functions to automating outcomes,”

What determines the winners

Even in the current environment, not all SaaS companies are under pressure.

Kojima said companies that own proprietary data and can leverage it to automate outcomes continue to command strong valuations. This is evident in sectors such as ESG and CO₂ management, where companies that collect and analyse data are seeing valuation increases.

The Japanese PE fund manager noted that companies with data or capabilities that are difficult to replicate are more likely to survive, highlighting ERP, healthcare, and construction-related software as promising areas. “These types of companies will continue to be targets for M&A,” the fund manager said.

Changing business models and M&A strategies

The shift is also affecting revenue models. Traditionally, SaaS has relied on a “per-user, per-month” subscription model. However, as AI-driven automation advances, this approach is becoming harder to sustain, and the market is expected to move gradually toward outcome-based pricing, according to Kojima.

M&A strategies are also evolving. In Japan’s IT services sector, acquisitions have historically been driven by the need to secure engineering talent, reflecting a labour-based, headcount-driven growth model.

Koji­ma said the focus will increasingly shift toward combining consulting, business process outsourcing (BPO), and data capabilities to deliver integrated value. “It is not that people become unnecessary, but the roles required will change,” he said. “The shift is toward higher-value functions rather than simply adding resources.”