Tech dealmakers are hitting the brakes. According to The Information, AI disruption and inflation fears are chilling mergers and acquisitions across the technology sector, creating a paradox where the industry’s hottest trend is simultaneously fueling and freezing deal activity.
The numbers tell a striking story. While tech deal value surged over 500% in late 2025 (reaching $191.6 billion in headline transactions), overall deal counts actually drifted downward, from 1,580 in Q1 to 1,428 in Q4. Translation: fewer deals are getting done, but the ones that close are massive. The market is splitting into haves and have-nots.
🧊 Why Deals Are Freezing
Two forces are squeezing the M&A pipeline simultaneously:
- AI valuation chaos. Nobody knows what legacy software companies are actually worth anymore. The Jefferies GRAF metric (a key growth-adjusted valuation benchmark) has compressed 61% since 2021. If your product does something AI can replicate faster and cheaper, your asking price just cratered.
- Inflation pressure from AI itself. The massive spending on data centers, chips, and energy infrastructure is pushing costs up across supply chains. Higher interest rates follow, making acquisitions more expensive to finance and future profits less attractive to discount.
Tariff turbulence and policy uncertainty have piled on. Deal values announced in recent months fell 24% below quarterly averages, with buyers pulling back to reassess.
🎯 Where the Money Is Still Moving
Despite the chill, M&A hasn’t stopped. It’s just gotten extremely selective. PwC and Bain project deal activity could surge 30-40% year-over-year to an estimated $600 billion in 2026, but concentrated in specific sectors:
- Cybersecurity: recurring revenue, hard to replace with generic AI
- Cloud infrastructure: the picks-and-shovels play for AI buildout
- Vertical software: niche enough to defend, with AI augmentation upside
- Data center assets: the most critical bottleneck in the entire AI wave
AI-native companies are commanding 5-6x valuation premiums over traditional SaaS peers. AI-referenced deals now make up 72% of all SaaS transactions, a 12x increase since 2018.
💀 Who’s Getting Hurt
General-purpose productivity and workflow automation software is getting hit hardest. CRMs, collaboration suites, and commodity vertical applications face direct threats as AI automates the routine work these tools were built to manage.
Mid-market software companies face what analysts are calling an existential reckoning. They’re too small to build competitive AI features, too generic to defend their niche, and too expensive to acquire at their old valuations. Many will be forced into fire-sale consolidation.
What This Means for You
If you’re building or running a software company:
- Defensibility is everything. Proprietary data, deep vertical expertise, and switching costs matter more than ever. Generic tools are dead.
- Expect longer deal timelines. Buyers are running deeper diligence on AI exposure before signing. Budget an extra 3-6 months.
- AI-native positioning commands premium pricing. Companies with outcome-based metrics and genuine AI integration are achieving 7-8 percentage points higher growth than SaaS peers.
The fundamental shift here isn’t that M&A is dying. It’s that AI has rewritten the rules for what’s worth buying. Companies that AI empowers are getting snapped up at premium valuations. Companies that AI replaces are watching their deal prospects evaporate.
This tension between AI as deal catalyst and AI as deal killer will define tech M&A through 2026 and beyond. For more details, check the original reporting from The Information.