Buyout shops will resume eating the software world
20/11/2025 15:20
The author is a Reuters Breakingviews columnist. The opinions expressed are his own. Corrects fifth paragraph to remove reference to nCino.
By Pranav Kiran
TORONTO, Nov 20 (Reuters Breakingviews) - Predatory software developers are becoming prey again. OneStream OS.O, for example, is mulling a sale just 18 months since the $5 billion financial data manager made its market debut and plugged away to improve cash flow amid higher interest rates. Buyout firms stand ready to capitalize on valuations crimped by investors chasing artificial intelligence riches instead.
Nearly 15 years after venture capitalist Marc Andreessen famously said software is eating the world, it is mainly self-learning chatbots feasting now. Since OpenAI released ChatGPT three years ago, the BVP Nasdaq Emerging Cloud Index tracking cloud computing providers has sharply lagged Magnificent 7 stocks. Even improved profitability and cash generation by those selling business software subscriptions have failed to entice fund managers.
OneStream is a case in point. Its shares were down 30% before Reuters reported news of a potential sale earlier this month. At the same time, the company's free cash flow is set to grow 40% on average from 2026 to 2029, based on estimates collected by Visible Alpha.
These stars are aligning for private equity, which binged on software a few years ago. A 30% premium to OneStream’s undisturbed market value, less net cash, would value the enterprise at $4.3 billion, or more than 6 times its estimated 2026 revenue. Stuffing OneStream's balance sheet with debt equivalent to 5 times its estimated EBITDA — assuming existing growth and profitability projections — and selling it again for the same valuation multiple in five years would generate an internal rate of return that exceeds 25%, according to Breakingviews calculations.
It's part of a broader theme. Companies in Software Equity Group's SEG SaaS Index are on track to improve free cash flow by a median of 20% annually over the next three years, Breakingviews calculated using ones growing their top lines between 10% and 20%. Confluent, BILL Holdings and Rapid7 are among those that fit the profile and each is looking to sell, according to Reuters. Since ChatGPT's release, their stock prices have ranged from up 2% to down 70%.
More affordable funding also helps. The average cost of loans used to finance M&A deals dropped by about 1.6 percentage points in the 12 months to September 30, according to PitchBook data. This means potential suitors have stronger negotiating power to secure better terms, helping them gorge on software anew.
CONTEXT NEWS
Financial software developer OneStream is exploring strategic options, including a possible sale, Reuters reported on November 5 citing unnamed sources.
OneStream has been working with investment bankers at JPMorgan, according to the report, which noted that deliberations are at an early stage and that there is no guarantee of any transaction. Buyout firms Blackstone and Hg are among those studying possible bids.
Software's stock performance lags the Mag 7 https://www.reuters.com/graphics/BRV-BRV/xmvjqrkaqpr/chart.png
Buyouts shops have been getting sweeter loan terms https://www.reuters.com/graphics/BRV-BRV/gdvzjdqxxvw/chart.png
(Editing by Jeffrey Goldfarb; Production by Maya Nandhini)
((For previous columns by the author, Reuters customers can click on KIRAN/pranavkiran.t@thomsonreuters.com))