KeyBanc Capital Markets told clients this week that the reported approach by private equity firm Silver Lake toward Workday (NASDAQ: WDAY) is a catalyst to reexamine the prospects for elevated dealmaking in enterprise software. In a client note, analyst Jackson Ader outlined three specific drivers that could combine to push more consolidation in the application software space.
Ader said KeyBanc has anticipated more merger-and-acquisition activity for several years. While some increase occurred in 2025, the firm had expected a quicker pickup in 2026 that has not materialized, he noted. The note cites two drag factors that have restrained transactions so far: doubts about software's resilience and the diversion of resources toward AI infrastructure projects, which have "consumed time, cash, and attention from potential public and private equity acquirers."
KeyBanc lays out three reasons why M&A could intensify:
- Pricing model transition - The sector-wide move from seat-based pricing to models with a consumption component may be easier to implement outside the glare of public markets. Ader emphasized that certain major pricing changes are often "better done in the privacy of your own conference room," comparing the shift to subscription-era changes during the rise of software-as-a-service.
- Growth durability is a double-edged factor - The firm argues this dynamic works both ways. On one hand, Silver Lake's reported willingness to engage with application software - specifically its interest in Workday - signals comfort with the underlying business model. On the other hand, companies trading at depressed multiples may find that potential buyers interpret the current slower-growth environment as more persistent than the vendors and their investors hope.
- Valuation gap - KeyBanc points to a meaningful decline in valuations across application software. Its selected basket of application software names is down 26% since the start of 2025, after falling more than 50% by late June. The analyst illustrated the opportunity created by lower prices with a remark about scale: "What an acquirer would have paid for HUBS two years ago ($50B?) now could gobble up HUBS and about a dozen friends," suggesting buyers could achieve greater consolidation for the same capital outlay.
The note frames these three elements as potential enablers for increased activity among both strategic and financial buyers. However, KeyBanc's commentary also underscores the tensions inherent in the current market environment: investor caution about software durability, ongoing capital allocation to AI infrastructure, and materially lower equity valuations.
What this affects
- Enterprise software vendors and their shareholders, who face shifting valuation dynamics and potential interest from acquirers
- Private equity and strategic acquirers assessing timing and execution risk around pricing-model transitions
- Markets tied to cloud applications and software licensing economics, given the interplay between growth perceptions and deal appetite