AI advancements have led to an increased interest in acquiring software companies, as indicated by RBC Capital. The software sector has seen a rise in merger and acquisition activities driven by private equity firms looking for cost-effective opportunities amidst uncertainties brought about by AI technology. Analysts at RBC have identified numerous software companies that are potential candidates for mergers and acquisitions.

The software industry is facing significant challenges from AI, causing a decline in stock prices and creating unique opportunities for opportunistic buyers, according to analysts at RBC Capital Markets. Formerly high-performing software companies are now trading at substantial discounts as concerns grow over how generative AI could disrupt Software as a Service (SaaS) business models. This climate of uncertainty is seen as laying the groundwork for a new wave of deal-making.

RBC reports a 78% surge in software M&A activity this year, with private equity deal volume more than doubling as investors seek value deals. Analysts suggest that as software stocks underperform due to AI-related concerns, there could be more buyers taking advantage of the market dislocations, especially in the private equity sector.

Despite not having specific knowledge of any imminent deals, analysts have highlighted potential targets that possess strong customer bases and cash flow but lack substantial AI strategies. Private equity investors, less constrained by quarterly earnings pressures, could move swiftly to privatise these companies, reset expectations, and position them for success in an AI-centric environment.

While mega-cap tech acquirers face regulatory scrutiny, financial sponsors have more flexibility to pursue acquisitions. RBC anticipates that deal momentum will increase once market sentiment stabilises and valuations remain low. The downturn in software stocks driven by AI concerns might soon catalyse a consolidation trend led by value-driven acquisitions rather than speculative hype.

RBC has identified several software companies that could be attractive merger or acquisition targets based on their respective market positions:

– Asana (ASAN)
– Box (BOX)
– Confluent (CFLT)
– Coursera (COUR)
– Dropbox (DBX)
– DocuSign (DOCU)
– Elastic (ESTC)
– Five9 (FIVN)
– Fastly (FSLY)
– Gen Digital (GEN)
– GitLab (GTLB)
– ZoomInfo (GTM)
– N-Able (NABL)
– NICE
– Nutanix (NTNX)
– PagerDuty (PD)
– Qualys (QLYS)
– Rapid7 (RPD)
– Teradata (TDC)
– Varonis (VRNS)
– Zoom (ZM)

These companies present various strategic opportunities for acquirers seeking to capitalise on their strengths and potential synergies in the evolving landscape of AI-driven technologies.