Secular trends across AI, cybersecurity and defence are likely to drive a private equity buyout rebound across European technology names in 2026, dealmakers told Mergermarket.

Last year certainly saw a pause for breath. In 2025, tech sponsor buyout volume fell to EUR 40.2bn across Europe, down 33% year-on-year (YoY), while aggregate deal count of 372 dropped 11% YoY.

But context is crucial. Even while down markedly from 2024, last year’s sponsor buyout volume is the second highest on Mergermarket record.

Most emblematic of sustained positive sentiment was KKR’s EUR 5.6bn public-to-private buyout of London-headquartered precision measurement instrument manufacturer Spectris, announced in July. It was the largest European buyout by deal value last year.

P2P transactions are expected to continue in the UK this year, with several US-based investors casting their eyes at publicly-listed assets across the pond.

Nonetheless, the dip in tech PE buyouts is worthy of exploration in the context of robust tech M&A volumes overall. Total tech dealmaking, including strategic acquisitions and exits of all types across Europe, jumped 22% YoY to EUR 170.3bn, the sector’s second-best year on record.

Strategic-led transactions, such as the EUR 21.3bn pending acquisition of Israeli cybersecurity software firm CyberArk by US-based Palo Alto Networks, provided the backbone for the strongest year of tech dealmaking since 2021, the data shows.

So why did PE buyout activity slip? Oriane Durvye, managing partner at Alantra, said that sponsors are more “picky and cautious” in the current environment.

Take software-as-a-service (SaaS). Storming advances in AI tools have complicated the segment’s outlook, with investors and corporates alike running the rule on whether individual SaaS business models are aligned with this technological revolution – or will be disrupted out of business.

Deals are consequently taking longer to complete, said one London-based software banker. Preparation and pre-marketing periods for larger assets are being drawn out as potential buyers front-load their due diligence during the initial auction phase, this banker added.

Yet most software assets that come to market are trading, so long as sellers are clear-sighted on value expectations, Durvye said.

To help assets reach their long-term potential, existing shareholders are showing willingness to sacrifice short-term gains to roll-over and defer their upside until later in the journey, according to Daniel Turgel, co-head of White & Case’s Global Technology Industry Group.

“We will see founders become more flexible in terms of valuation this year,” he said.

That need for flexibility is crucial. The median EV/EBITDA multiple of European software deals with disclosed values in 2025 fell to 12.3x from 15.5x in 2024 – far below the 10-year high of 26x seen in 2021, according to Mergermarket data.

AI alignment, military mandates

The flipside of that multiple contraction is that the slew of assets that received VC capital or were bought by sponsors in 2020-2021 are prime targets for “revitalisation” under a new PE owner, Turgel said.

Alongside this impulse is the positive side of the AI coin, with better-placed corporates set to capitalise on the technology’s rapid rollout.

“PE hasn’t yet fully capitalized on the opportunity that the European tech scene provides,” Turgel added.

Moreover, the shifting geopolitical environment has highlighted the “critical” need for AI-driven cybersecurity and data protection systems. This has resulted in numerous tech investors, including GPs under increasing pressure to deploy capital, expanding their mandates to include defence for the first time, Turgel argued.

Investors are turning to pure defence plays, such as military drone manufacturers, as well as “dual-use” companies developing software applications for both civilian and military use, he said.

The market value of field ops software assets and military training software developers is also rising as tensions mount across the globe, Alantra’s Durvye said.

Away from defence, sponsors and growth investors are also being drawn to large-cap financial software firms offering predictable, profitable cashflow via recurring revenues and the potential for explosive growth, said Jean-Malo Dupart, fintech managing director at Stifel.

Next year’s pipeline of fintech software assets is expected to include Marlin Equity’s Swedish spend management player Medius and AnaCap’s payment platform Market Pay, headquartered in France.

Mid-market opportunities remain compelling, said White & Case’s Turgel.

In the wider tech space, French occupational-health software provider Padoa, backed by Kamen Ventures and Five Arrows, and Mayfair Equity’s adtech specialist Loopme are among several mid-market names weighing sales this year.

With 248 active auctions involving European tech assets tracked by Mergermarket – of which 142 are ready for take-off in the pre-launch phase – it promises to be a busy year for sponsors keen on increasing their European sector exposure.