By Martim Neves,
Managing Partner
at Full House Partners
In the near past, many believed that the recent dip in technology private equity deals would naturally rebound by this year. The logic seemed solid: with interest rates stabilizing, aging funds in need of returns, and plenty of capital available, a revival looked imminent.
Recent trends have, however, told a different story.
Despite a brief lull in activity earlier in the year, investors still face a landscape shaped by cautious central bank policies and ongoing uncertainty about future rate cuts. Many software-as-a-service (SaaS) businesses present mixed growth prospects, fueling continued disagreement on valuations between buyers and sellers. Without a clear change in interest rate direction, the tech M&A environment is unlikely to mirror its pre-slowdown pace anytime soon.
One thing, though, has become increasingly apparent: investor priorities are no longer what they once were, and how technology assets are managed will need to keep up.
For years, returns in tech private equity were driven by two things: revenue increases and the hope that valuations would keep climbing. In a period marked by high-interest rates, though, this old model needs a rethink. Today, emphasis has shifted toward a more balanced evaluation using the “Rule of 40”—that is, a company’s growth rate and profit margin added together should hit at least 40%.
Expansion remains vital, but today’s market jumps at companies that pair decisive growth with healthy, sustainable cash flows. To illustrate, EQT’s acquisition of Avetta, a major supply chain SaaS provider, for $3 billion—about 24 times projected 2025 EBITDA—reflects renewed investor attention on profitability over mere expansion.
A downturn in overall deal count hasn’t eased the rivalry for outstanding companies. Multi-sector investment firms that waded into tech during the post-pandemic surge show little sign of retreating. This ongoing interest keeps valuations high, meaning investors must ensure their chosen companies meet performance targets, especially in mature areas of software where growth is leveling off. Rather than hoping for untapped markets, attention is shifting to strategies that help replace existing solutions and claim market share.
In this climate, success calls for robust investment in research and development, along with well-crafted go-to-market plans—both of which should ideally be supported by existing revenue rather than risky bets.
Experience points to several fundamental principles on which firms now rely to drive operational excellence and achieve long-lasting EBITDA growth, without losing sight of sustainable expansion:
1.Strategic Investment and Smarter Cost Controls
Allocating capital where it will drive true demand and revenue growth—either by product line or business segment—can set a company apart. Understanding unique competitive positions, leaders can then make targeted cost adjustments to safeguard long-term growth. Common pitfalls are sweeping cuts, such as slashing R&D budgets, which often stifle the very innovation needed for future success.
2. Refining Go-to-Market Approaches
For SaaS businesses, sales and marketing are typically the largest expense lines, so optimizing these functions is a must. It’s critical to evaluate whether enough attention is being paid both to acquiring new customers and expanding existing accounts. Adjustments to service models, paired with flexible resource allocation in response to changing market needs, can unlock new efficiencies without eroding client satisfaction.
The impact of this is clear: when a leading private equity group merged two SaaS outfits, it found that overlapping commercial teams offered a chance to cut costs. Instead of simple staff reductions, management mapped out potential customer growth carefully. The results were striking: $30 million in annual savings, and exposure to $7 billion in previously untapped markets—a leaner, sharper business with room to expand.
3. Embracing Generative AI Wisely
Excitement about generative AI continues, but leaders recognize that successful integration depends on identifying clear use cases. The firms ahead of the curve use AI strategically—often in software engineering or customer service—focusing on tangible gains rather than hoping for rapid top-line growth. As a result, AI has become an essential pillar for long-term efficiency and innovation.
4. Orchestrating Change from the Top Down
Evolving from a growth-at-all-costs model to one focused on sustainable, profitable expansion requires more than a new playbook—it’s a cultural reset. Private equity-backed companies often falter when the vision isn’t lived across the organization. Clear communication, transparent rollout of new strategies, and talent management aligned with evolving value-creation goals have become central to a firm’s ability to adapt and thrive in this changing market.
It remains uncertain exactly when tech dealmaking will surge again. What is clear, though, is that future leaders in this space will win not by chasing high growth alone, but by building robust businesses poised for enduring, profitable expansion.
FHP Capital continues to believe that a blend of creative thinking, data-driven insight, and unwavering operational focus is the surest way to unlock long-term value. Prioritizing efficiency, adaptability, and continuous innovation, businesses are better equipped to flourish regardless of what the market throws their way.
By Martim Neves
Managing Partner
Full House Partners
