Robert Hussey, managing director of the technology and software division at IBI Corporate Finance, said the valuation benchmark for software companies had “reset” and was a third of the levels seen during the pandemic peak.
Companies that completed investment rounds during the pandemic did so when valuations were on a high — meaning they could raise significant funds without giving away large numbers of shares.
Those same companies and their investors are now looking at potential “down rounds”, Hussey warned.
A “down round” is where a business raises fresh investment capital at a lower valuation than previous investors bought in at.
Hussey said in some cases firms are delaying raising fresh capital as a result, but that can hurt growth.
He said avoiding a down round has implications for business performance.
This strategy has direct implications for top-line growth
“A prevalent strategy employed [by businesses] has been to extend the funding runway by focusing on cost control and profitability, pushing out the time frame for the next capital call. This strategy has direct implications for top-line growth,” he said.
Hussey said some entrepreneurs needed to adjust their expectations to the current valuation climate.
Down rounds are not uncommon and have hit large companies in recent years.
Payments giant Stripe raised a down round in 2023. It secured over $6.5bn at a valuation of $50bn, down from $95bn in 2021. The valuation has since rebounded, reaching $91.5bn in February.
Hussey said there was now a greater focus from private equity and strategic trade buyers on the quality of assets, particularly future profitability. He believed that “core fundamentals” had to be in place already to attract a “premium value” for a business.
“Quality companies that are well prepared with strong unit economics and delivering upper-end software as a service performance measures can command premiums,” he said.
“Strategic [buyers] and private equity are focusing on core business performance before focusing on tangential growth opportunities and total addressable market opportunities.”
If the US gets a cold, we get a flu
Other merger and acquisition trends noted by Hussey included sales processes taking longer, with an increased focus on due diligence.
Hussey said the geopolitical turbulence caused by US tariffs also impacted deal volume over the second quarter of the year.
Despite the slowdown over that period, Hussey still believed the Irish market would be on track for over 400 deals this year. He felt increased certainty from the US-EU trade deal presented a good opportunity for deals to get over the line.
“If the US gets a cold, we get a flu,” he said. “The fundamentals of that are, if the macro-economic environment stabilises, we have a fairly strong, resilient pipeline of deals in the Irish market.”
IBI is one of Ireland’s best-known merger and acquisition advisors. In 2023, the business was acquired by Japanese financial giant Daiwa’s DC Advisory business.
Much of Hussey’s work with IBI focuses on attracting international investment and buyers to Irish companies. He also helps firms here access international targets.
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