Tech company owners take note. If you're considering selling your company, PE firms are poised to buy it. With trillions of dollars of dry powder at hand, pent up demand for investment, and recent decreases in the cost of capital, PE activity in the M&A market is expected to rise dramatically in 2025. That upward trajectory actually started in 2024. After a downward trend in PE activity for a number of years caused by the COVID pandemic and political instability in places such as Ukraine and the Middle East, PE M&A activity rebounded in 2024, with higher volume and higher valuations than in 2023, and more than double the number of PE-backed megadeals over $5 billion. For example, in the largest PE acquisition of 2024, R1, a developer of automating revenue management solutions for healthcare providers, was taken private by PE firms Towerbrook Capital Partners and Clayton, Dubilier & Rice for $8.9 Billion.

Hot PE targets

Technology sectors are expected to continue as hot PE targets in 2025. Already in the first month of 2025, there were a variety of platform and bolt-on deals involving PE acquirers and PE-backed companies. For example, professional services firm MorganFranklin Consulting sold its cybersecurity practice to PE firm M|C Partners. And Corum client Eccovia, a software and services company that provides innovative case management and data analytics solutions to social and human services providers, was acquired by case management platform provider CaseWorthy, a company backed by PE firm STG.

Companies utilizing artificial intelligence (AI), especially generative AI (genAI), are expected to be in high demand by PE acquirers, as they increasingly prioritize companies that leverage genAI to optimize operations, enhance customer experiences, and expand market reach. According to Alex Spencer, CEO of Solen Software Group, a firm that acquires and builds vertical market software businesses, implementing and leveraging genAI is a key trend that tech company CEOs should be considering in the coming year.

Innovative healthcare solution providers are also expected to be attractive M&A targets for PE firms. Companies that offer creative solutions in healthcare-related areas such as medical technology, biotechnology, digital health, and personalized medicine provide PE investors with the potential for high growth and returns.

Innovative technology applied in the consumer space is also expected to draw attention from PE firms in 2025. For instance, companies that have a strong online presence and seamlessly integrate e-commerce into their operations to reach consumers are attractive to PE investors. So too are companies that leverage digital tools to optimize their inventory management, logistics, and supply chain processes.

Beyond the innovative technology and solutions that a company offers, strong management is a vital factor in attracting PE firms to the M&A table. Callie Blankenau, Vice President of Business Development for PE firm The Stephens Group, says, "The most important characteristic for us is a strong management team. We look for leadership that has demonstrated strategic vision, operational expertise, who know their market very well, and has a willingness to collaborate."

Some potential issues

Although the outlook for PE activity in the M&A market is very positive there are some potential reasons for caution. One is U.S. President Trump's tariff strategy which may target a variety of U.S. imports, potentially resulting in retaliation on U.S. exports, and generally creating market uncertainty.

Another is cybersecurity risks. Tensions with adversarial countries such as China and Iran pose continued cybersecurity risks for PE firms and their portfolio companies, making investment problematic in certain areas of the world. Unfortunately, AI has heightened the cybersecurity risk, making it easier for bad actors to mount cyberattacks against companies. This puts an added burden on PE firms and their portfolio companies to protect against these attacks.

Also, regulatory scrutiny may increase in 2025 for certain sectors such as healthcare, which may make PE firms more cautious about initiating deals in those sectors, and potentially lead to a decline in overall investment activity.

A great time to sell

Even taking these potential issues into account, the overall picture for PE activity in the tech M&A market is excellent. Corum Founder and CEO Bruce Milne puts it this way:  "The tech M&A market today is incredibly competitive with more buyers than ever and with over $6 trillion in dry powder. There’s never been a better time to sell."