The SaaSpocalypse fall-out is forcing Australian Software-as-a-Service (SaaS) investors to rethink their M&A strategies as they work out the next tech winners and how assets will be repriced, sector experts told Mergermarket.

Valuations have plummeted as generative AI threatens the foundational SaaS per-seat subscription revenue model and Anthropic’s artificial intelligence (AI) tool, released in January, enables developers with little coding experience to replicate some software functions.

Most Australian SaaS companies have seen significant share price declines, with the ASX All Technology Index falling 19% in the 12 months leading to March 2026.

Australia-founded, NASDAQ-listed Atlassian, once a SaaS darling, is one high-profile casualty and continues to see its share price hovering at around USD 66.94 compared with USD 458.13 in October 2021.

“Lots of people are going to suffer from the AI wave, while others will benefit,” said an M&A banker focusing on technology and software, who believes the share price fallout and impact of AI on the space will likely lead to more consolidation and deal flow, although it will take some months for this to play out.

In listed software land, there is a thesis for consolidation in the sense that scale is important and those who are suffering might well join companies better positioned to survive in a rapidly evolving new market, the banker said. Boards will, however, be cautious as many feel the share price fall has been overdone and now is not the right time to do a deal unless it is sensibly priced, he added.

Vertical software in vogue

Winners in the new environment will include those with core AI moats, such as vertical software deemed mission critical providing the core system of record, with proprietary data, and embedded transaction capability, as well as vertical software coupled with hardware, Pemba Capital Partners MD Tom Matthews said.

Losers, he said, include tools that can be replicated by AI, and companies that rely on third-party data or have high levels of per seat subscription where AI is likely to reduce the number of seats clients require.

Although its focus is on vertical rather than horizontal software, Pemba recently took its whole team off the tools for three weeks to reassess its niches for AI impact and to sharpen and align sector origination efforts over the next six to 12 months, Matthews said.

Some sectors previously “red lit”, like agtech and others with a coupled hardware offering, have now been “green lit”, while others, like employee engagement software, have moved from green to red, Matthews noted.

“Pemba has embedded AI systematically across its investment process and portfolio management approach, focusing on identifying AI-resilient niches, supporting value creation within partner companies, and managing emerging disruption risks,” he added.

Pemba’s 2025 vertical software investments include AI-enabled hospital intelligence developer Healthcare Logic, robotics-powered logistics company Skutopia, safety compliance software company Locatrix, and fraud prevention developer Satori. Deal values weren’t disclosed.

Horizontal software players will be challenged, and future competition will be very different, agreed Potentia Capital MD Andrew Gray, in a recent Mergermarket report. In 2024, Potentia acquired a majority stake in childcare engagement software provider Storypark, which acquired software vendor Xap this April. Deal values weren’t disclosed.

Almost all K&L Gates Straits Law LLC’s recent and current deals have been in the vertical space including healthcare revenue cycle management, remote patient monitoring, commodity trading risk management, agriculture plantation management, and field sale operations, partners David Kuo and Meraj Noor said.

The balance has also shifted to later stage-platforms with entrenched customers as buyers increasingly look to captive client bases to grow their businesses, rather than earlier-stage companies with higher failure rates, they added. The firm is advising Olam on the sale of Singapore-headquartered tech consultancy Mindsprint for USD 375m to Wipro, subject to Australian regulatory approval.

Pricing models in flux

As pricing models adjust to the new scenario, we could be entering a golden era for investors in software that leans into AI or is strong in AI moats, said Pemba’s Matthews.

Vertical software players are trading at significantly lower multiples than they were 12 months ago, creating acquisition opportunities, he explained.

While AI has boosted productivity and profitability, there is uncertainty regarding long-term impact on the industry, noted K&L Gates’ Kuo and Noor, who are seeing earn-outs used in most of its deals to bridge the valuation gap between buyer and seller.

According to Latimer Partners’ March 2026 Digital Economy Market Update, of the 128 ASX-listed technology companies it tracks, 80% have fallen in value this calendar year as AI reshapes valuations in real time with software multiples that peaked at 14x revenue in 2021 now sitting at 3.5x.

In the listed space, there may well be shareholders looking for liquidity in the current environment and technology-focused private equity (PE) firms could look to identify mis-priced good software businesses on the market, which will lead to deal flow, the banker said.

In the private market, some of the better, larger and more professional software-focused PEs, probably US ones, could see a significant buying opportunity and be ready to jump in. However, PE sponsors or private owners of software businesses, unless under pressure, are not likely to seek an exit at this time due to disrupted valuations, the banker added.

Offshore buyers abound

Offshore PE buyers recently active in Australia include Accel-KKR, with its 2025 investments in software developer for care providers Health Metrics and business intelligence software developer Phocas, while its workforce platform asset, Humanforce, bolted-on ShiftMatch and Emprevo this April. No deal values were disclosed.

International investment firm Arcadea Group, which invested in transport software business FreightTracker in October 2025, went on to acquire another transport software specialist, JAIX, this month (April) after flagging further buys with Mergermarket. Deal values were not disclosed.

Constellation Software’s vertical market subsidiary Vela APX has been a standout acquirer on the trade front, with 2025 acquisitions including digital experience platform Elcom, reportedly for AUD 12.5m, and care tech developer Vitalcare for an undisclosed sum.

Others active in 2025 include Atlanta, Georgia’s Banyan Software, which acquired healthtech Medtech Global, fleet leasing software developer Catch-e, analytics company Tapaas, and automotive software developer Harrier National. Canada’s Jonas Software bought pharmacy platforms MedAdvisor Solutions ANZ and RxOne, and manufacturing software specialist SQiBLE. Deal values were not disclosed.

Previously, we saw acquisitions being driven by financial sponsors, but this has shifted to being more balanced with strategic buyers also entering the mix in the past six months or so, K&L Gates’ Kuo and Noor noted. The change is likely due to developments in AI, as existing SaaS companies look to grow through platform acquisitions, they said.

While sponsors are still active in the market, these tend to be firms that have already acquired tech services platforms and are looking for bolt-on or consolidation strategies, rather than stand-alone acquisitions, they added.