As we wrap up Q1, BMO is pleased to share the latest edition of our Software Market Update. This quarter reflects upon a uniquely complex backdrop for the software sector, characterized by heightened macroeconomic and geopolitical uncertainty, coupled with rapid advancements in AI that are reshaping valuations, business models, and long-term defensibility.

The macroeconomic environment remains uncertain. Geopolitical tensions have increased market volatility and introduced further downside risks to inflation, particularly through energy prices. In this context, the Federal Reserve held policy rates steady at its March 18th meeting, maintaining a target range of 3.50% to 3.75% and reiterating a cautious, data-dependent approach. While potential easing later in 2026 remains a part of the Fed’s projections, policymakers emphasized uncertainty regarding growth trajectories and inflation persistence.

Although broader equity indices have shown resilience, software and selected technology sub-sectors have seen material drawdowns following the recent AI-driven selloff. As outlined in the update, the IGV index is down ~30% from recent highs, with EV to FCF multiples near three-year lows, highlighting that durability and terminal value concerns are weighing on software valuations. Advances in agentic AI and workflow automation have intensified scrutiny around pricing power, margins, and defensibility, driving wider valuation dispersion across the sector.

IPO activity reflects this cautious sentiment. Technology IPO issuance rebounded meaningfully in 2025, rising to $45.4bn across 65 IPOs, but has slowed in early 2026, with $7.7bn across 16 IPOs year to date. Recent IPO trading performance has also been challenged, with 2026 YTD median performance of approximately +4% from offer to day one and approximately -1% from offer to week one, reinforcing a more selective investor posture.

Software M&A activity rebounded materially in 2025, with aggregate deal value reaching $564bn. However, it has moderated in 2026 amid an uncertain outlook, with $41 billion in announced deals year-to-date as valuation resets and macro uncertainty have delayed decision-making. Strategic acquirers are prioritizing transactions that enhance core capabilities, expand product breadth, or improve long-term growth durability, rather than pursuing large-scale transformational deals. Financial sponsors continue to focus on intrinsic value and downside protection, supporting take-private activity where public valuations dislocate from fundamentals.

BMO remains actively engaged with clients across M&A, financing, and strategic advisory initiatives, supporting companies as they navigate heightened uncertainty, valuation recalibration, and structural change across the software ecosystem. We would be pleased to answer any questions or provide further insights.

To receive the full report, please contact our team.