Forget 10x Revenue: What Tech M&A Valuations Actually Look Like in 2026

Five years ago, a well-run Australian software business growing at 30% per year with $8 million of ARR could command a valuation conversation at 10 to 12 times revenue. Three years ago, the benchmark had settled to five or six times. Today, the market for quality technology assets in Australia sits at three to four times revenue — and the conversation has shifted from revenue multiples to EBITDA.

That is a fundamental structural reset, not a temporary dislocation. Founders who are planning a capital event in the next two to three years need to understand what drove it, where the market actually sits today, and how to position their business in the context of the valuation environment that actually exists — not the one from the peak.

What Drove the Reset

The repricing of technology assets globally was driven by several intersecting forces — and understanding them is important because it affects whether the current environment represents a floor or a continuing decline.

The first driver was the interest rate cycle. The technology sector's historic premium valuations were in part a product of near-zero interest rates, which made high-multiple, high-growth, low-profit businesses look attractive relative to alternatives. As rates normalised, the discount rate applied to future cash flows increased, compressing multiples mechanically.

The second driver was the AI narrative. Counterintuitively, the arrival of large language models accelerated the derating of some software businesses rather than inflating them. The market began to ask harder questions about the defensibility of software platforms that could, in principle, be replicated more cheaply using AI-assisted development. This hit horizontal SaaS businesses — CRM, project management, generic workflow tools — harder than vertical software with deep domain specificity.

The third driver was the rotation from growth-at-all-costs to profitability. The capital markets — both public and private — stopped rewarding revenue growth without a credible path to profit. The conversation moved from net revenue retention and ARR growth to EBITDA margin and cash generation. Businesses that had been burning cash to acquire customers found their investor base disappearing.

The sell-off has been indiscriminate — everyone has been impacted, whether you are good or bad. It will take time. There will be a level-setting on what the attributes of high-quality software businesses look like in the AI world. — Senior partner, Australian growth PE fund

Where the Market Actually Sits in 2026

The BVP Nasdaq Emerging Cloud Index — the broadest public-market benchmark for software business valuations — has established a new trading range of three to four times forward revenue for the median asset. The top quartile trades at a premium; the bottom quartile at a significant discount. But the index range reflects the new normal for the sector, not an outlier.

In the Australian private market, the translation requires some adjustment for size, liquidity, and the characteristics of the local buyer base. But the directional message is consistent with what we are seeing in transaction data:

• Quality assets with $15M+ ARR, 30%+ growth, and clear path to EBITDA profitability: 4–6× revenue
• Established assets with $15M+ ARR, moderate growth (15–25%), and EBITDA breakeven or positive: 3–4× revenue
• Sub-threshold assets (sub-$15M ARR) or assets with growth concerns: primarily EBITDA-driven, 8–12× EBITDA where applicable
• Total transaction value / GMV metrics: increasingly used as a cross-check only, not a primary valuation driver; roughly 1–1.3× where relevant

The shift to EBITDA as the primary metric for a growing number of buyers is significant. It means that a business approaching breakeven — or recently through it — has a valuation conversation available to it that was not accessible when it was burning $2 million a year to fund growth. Profitability creates options. Loss-making businesses, even with strong revenue, are in a structurally weaker negotiating position.

The AI Factor: Threat and Opportunity

No discussion of technology valuations in 2026 is complete without addressing AI. The question buyers are asking is not whether AI is real — it clearly is — but whether it represents a threat to the specific asset they are evaluating, or an opportunity.

For horizontal software businesses — tools that solve generic problems in ways that can be replicated by an AI agent with a database and some well-crafted prompts — the threat is material. Buyers are applying a scepticism discount to these businesses that was not there three years ago. The argument "our product does X" is increasingly met with "yes, but how long before Claude does X for $20 per month per seat?"

For vertical software businesses — platforms deeply embedded in regulated industries, with complex domain-specific logic, strong customer relationships, and years of accumulated data — the threat is much more limited. The cost of replication is not just engineering effort; it is domain expertise, regulatory knowledge, trust, and the kind of operational complexity that resists greenfield development. These businesses are, in fact, benefiting from AI as a productivity tool while being relatively protected from AI as a competitive threat.

Could you do more? Will you do more? The tools you have at your disposal to code versus what you had 12 months ago — night and day. It is going to be up to founders to either build their moat around the business, or have somebody else chisel you out.

The practical implication for founders preparing for a sale process: if your business sits in a regulated, operationally complex, or data-rich vertical, lean into that positioning explicitly. The defensibility argument is not just a nice-to-have — it is actively differentiating in the current market. Buyers have seen enough AI-exposed assets to appreciate genuine barriers.

What Buyers Are Actually Prioritising

Based on current deal activity in the Australian market, the characteristics that are commanding premium valuations are consistent and worth understanding explicitly:

• Recurring revenue with demonstrable retention — net revenue retention above 100% is rare and commands a meaningful premium; churn above 15% annually is a discount
• A clear path to and from EBITDA profitability — not just "we could be profitable if we stopped investing" but a credible model that shows when and at what margin
• Customer concentration below 20% — single-customer concentration above this level introduces a risk discount that is difficult to recover in the price
• Management team depth — buyers at the growth PE level are not buying a business run by a solo founder; they need a team that can execute without the founder present
• Defensible market position — system-of-record status, deep integrations, switching costs, or regulatory moats that protect the revenue base
• International optionality — businesses where there is a credible, de-risked path to offshore expansion (particularly the US) trade at a premium because buyers can model the next phase of growth

The Practical Implications for Founders

If you are planning a sale process in the next 12 to 24 months, the valuation environment has three practical implications.

First, adjust your expectations to the current market. Founders who have been carrying a valuation number in their head from conversations three years ago — or from a comparable transaction in the peak market — need to update that reference point. The conversation you need to have with your board and co-founders about value may be uncomfortable, but having it before you are in process is far better than discovering the misalignment mid-negotiation.

Second, focus ruthlessly on EBITDA trajectory. A business approaching $2 to $3 million of EBITDA with $15 million of revenue has a valuation story available to it — using EBITDA multiples as the primary lens — that a loss-making business of the same revenue cannot access. The 12 months of financial performance before you go to market are the most important 12 months in the history of your P&L. Manage accordingly.

Third, do not try to time the market. The uncertainty in global markets, the trajectory of interest rates, the pace of AI development — none of this is predictable with the precision required to make a meaningful difference to timing. What is knowable is the quality and positioning of your own business. Focus your energy there.

A Note on Process

Valuation multiples are one input into a sale outcome. Process quality is the other. A well-run competitive process — the right buyers identified and engaged simultaneously, the information memorandum and management presentation built to answer the questions before they are asked, the data room organised for efficient due diligence — consistently produces better outcomes than the multiple environment alone would suggest.

In the current market, where the buyer pool for any given asset is smaller than it was three years ago, process quality matters more, not less. Generating genuine tension between two or three credible parties in a thoughtful process is how you recover valuation in a market where multiples have compressed.

The reset in technology valuations is real. But it is not a reason to despair, or to wait for the market to return to 2021. It is a reason to prepare more carefully, to understand where your business genuinely sits, and to run a process that makes the most of the market as it actually is.