AI: the impact on SaaS valuations, but also new opportunities?

Larry Fink recently warned that artificial intelligence could become one of the defining challenges for the next generation of professionals. According to the CEO of BlackRock, AI is evolving at a pace that many organisations and employees are struggling to keep up with. Within the technology and M&A landscape, this discussion is becoming increasingly relevant, particularly in relation to Software as a Service (SaaS) businesses.

For many years, SaaS companies were considered the most attractive assets in the technology market. Investors were willing to pay premium valuations for recurring revenue models, strong scalability, predictable cash flows and high growth rates. During the peak years of 2020 and 2021, it was not uncommon to see SaaS businesses valued at revenue multiples of 10x or even higher. Today, however, the market looks very different.

Over the past two years, SaaS valuation multiples have declined significantly. Part of this correction can be explained by rising interest rates, lower liquidity in financial markets and a more cautious investment climate. Nevertheless, the rapid development of AI platforms such as OpenAI, Claude and other large language models has added an entirely new dimension to the discussion.

The key question investors are asking is no longer whether a company is a SaaS business, but rather whether its software remains strategically relevant in a world increasingly influenced by AI.

This distinction is crucial. Generic software applications with relatively simple functionality are under growing pressure. Many traditional SaaS solutions are primarily user interface driven and rely on workflows that can increasingly be automated or replicated by AI tools. Businesses that charge customers based on seat licences or standardised workflows may therefore experience pressure on pricing, customer retention and long term competitiveness.

At the same time, AI is not simply destroying value across the software industry. In many cases, it is redistributing value towards companies with stronger technological foundations, unique data assets and more complex infrastructures.

This is where the market becomes particularly interesting for entrepreneurs and investors.

At CDI Global, we speak daily with investors, founders and management teams within the mid market technology sector. While uncertainty clearly exists, there is also a growing recognition that AI creates substantial opportunities for software businesses that are able to adapt effectively.

One of the most important differentiators is ownership of proprietary data. In an AI driven environment, access to unique and high quality datasets becomes increasingly valuable. Companies that have accumulated years of operational, transactional or sector specific data possess a strategic advantage that is difficult to replicate. AI models may become more accessible over time, but the underlying data powering meaningful outcomes often remains highly defensible.

Another important factor is complexity. Vertical software providers operating within specialised industries are generally better positioned than generic horizontal SaaS platforms. Sectors such as logistics, healthcare, compliance, manufacturing and financial services often rely on deep integrations, regulatory expertise and highly customised workflows. These environments are far more difficult to disrupt with a simple AI interface.

Logistics software is a strong example. Many platforms within this market are connected to carriers, ERP systems, warehouse infrastructure and external APIs. The implementation process is often extensive and deeply embedded within the customer’s operations. As a result, switching costs remain high and customer relationships tend to be highly resilient.

The same principle applies to software businesses that support mission critical processes. When software is deeply integrated into the operational backbone of an organisation, replacing it becomes significantly more complex and risky. This creates defensibility, even in a rapidly changing technological environment.

Another important shift is taking place within the broader IT services and software development market. Historically, many businesses relied heavily on billable hour models. AI is increasingly automating repetitive development work, documentation, testing and support activities. This inevitably puts pressure on traditional service models.

However, companies that successfully integrate AI into their service offering may actually strengthen their competitive position. Businesses that use AI to improve productivity, accelerate implementation cycles and deliver better outcomes for clients can create substantial value. In this environment, adaptability becomes more important than size.

From an M&A perspective, investors are becoming far more selective in how they evaluate software companies. Growth alone is no longer sufficient to justify premium valuations. Buyers are now placing greater emphasis on profitability, operational efficiency, customer retention and the sustainability of the underlying business model.

Metrics such as Rule of 40 performance, net revenue retention, EBITDA margins and churn rates have become increasingly important. In addition, investors are paying closer attention to AI related risks and opportunities during commercial and technical due diligence processes.

The central question is therefore not whether AI will impact software valuations. It already is. The real question is which businesses will emerge stronger as the market evolves.

Companies that rely on generic workflows, lack differentiation and possess limited proprietary assets may face structural pressure on valuations. In contrast, software businesses with strong datasets, vertical expertise, deep integrations and AI enabled solutions are likely to remain highly attractive acquisition targets.

Ultimately, AI should not only be viewed as a threat to the SaaS industry. For many businesses, it represents an opportunity to strengthen their proposition, improve scalability and create new competitive advantages.

The era of easy SaaS multiples may be behind us, but the long term opportunities for high quality software businesses remain significant. In fact, the companies that successfully combine AI capabilities with strong operational foundations may ultimately become even more valuable than the SaaS leaders of the previous decade.

By Hein Stoops, CDI Global partner