2025 Software, Data & Analytics Market Outlook
2025 Software, Data & Analytics Market Outlook
by Craig Muir
Deal Volume Expected To Accelerate Following Turbulent Few Years
After several years of lower deal activity in the Software, Data & Analytics sector, the Solomon Partners Technology group anticipates a strong recovery in 2025 due to a confluence of factors, including lower interest rates, financial sponsor fund dynamics, strong public equity and financing market conditions, and greater political certainty following the U.S. election, all of which are helping to boost investor confidence.
Financial sponsors, who have historically driven a significant proportion of transaction activity in Software, Data & Analytics but remained exceedingly cautious in recent years, are expected to capitalize on these improving trends as they look to exit a number of assets in 2025. The increasing pressure for sponsors to return capital to their limited partners (LPs) ahead of their next fundraising or to put recently raised funds to work will further contribute to sponsor activity.
In addition, large corporates that have built up significant cash reserves in recent years and have attractively priced equity currencies are looking to aggressively increase their M&A activity, taking advantage of an expected improvement in the regulatory environment. In addition, we anticipate certain corporates with large and diverse portfolios to look to capitalize on improving market conditions to divest non-core businesses, thereby freeing up capital to invest in M&A as well as strategic growth priorities such as artificial intelligence (AI). We expect the combined activity of corporates and financial sponsors to drive a significant pickup in deal volumes in 2025, which will likely build momentum through the year.
Allied to this, AI is having a transformative effect on the Software, Data & Analytics sector, driving innovation and growth, boosting valuations, and contributing to both financial sponsor and strategic M&A. Companies that combine software and data in a best-in-class, vertically focused, AI-enabled solution are uniquely positioned to capitalize on this opportunity. In addition to higher deal activity across the sector, we expect this to drive consolidation between software and data companies, as well as lead to increasing demand for companies that own proprietary, vertically focused data, software, and analytics.
As deal volume expands, Solomon Partners continues to see opportunities to grow our coverage of the Software, Data & Analytics sector. Launched in June of 2023, our Technology group has grown to 16 professionals, and we will continue to expand the group into 2025, bringing on sector-specific experts to lead key verticals.
