Will SaaS M&A pick up in 2024?

The tech M&A pendulum tends to swing back and forth from SaaS to IT services fairly regularly. IT services once again became a major player in 2023, and we expect SaaS to make a steady push in 2024.

Before we dive into the specifics surrounding this change, let’s first look at the history of IT services and SaaS when it comes to tech M&A.

Related: The melding of IT services and software

Technology is a major focus for both investors and top talent, no matter their role or function. The industry’s frequent innovations and ever-changing landscape are appealing because they offer stakeholders a chance at being part of the “next big thing.”

While the IT services industry has retained steady profitability by providing software systems for individuals and businesses, SaaS continues to gain traction by selling competing products in a web-based platform.

Could SaaS eclipse IT services in 2024? There are some factors in play that could make that a real potential:

1. Open AI’s ChatGPT became a stand-out SaaS product in 2023 because of its groundbreaking use of AI, but also because it brought this exciting new technology directly to consumers in an easy-to-use, web-based platform. Now, with a growing slate of Open AI competitors and endless possibilities regarding AI’s potential, SaaS companies will likely remain popular among tech investors.
2. The excitement and potential surrounding new technology companies have consistently attracted the best talent across functions. As SaaS is currently positioned to usher in a new era of AI, this attraction will likely grow stronger, and the influx of new, highly skilled talent will help strengthen the industry even more.
3. Private equity firms are sitting on a record amount of dry powder following a slower year for M&A. With plenty of capital to deploy into the market, firms will likely be more confident to take a chance by investing in new, innovative SaaS companies.

The takeaway:

Tech M&A shifted in favor of IT services during 2023, but we anticipate a resurgence of SaaS during 2024. The rise of innovative AI products, combined with record amounts of dry powder and an influx of top talent into the SaaS space, tell us that tech investors will likely place their focus on this sector in the coming months.

To learn more about tech M&A trends, contact Diane Fedor at (336) 217-9198 or diane.fedor@charlesaris.com.