M&A activity snapshot
Vertical software has overtaken horizontal software in deal count. Software Equity Group (SEG) reports vertical platforms were 54% of SaaS M&A in 2Q26, up from 46% a year earlier. Total SaaS activity is at a record: 2,784 deals over the trailing twelve months, up 16%.
Healthcare leads the verticals. In full-year 2025, SEG counted 232 healthcare SaaS deals, 17.4% of vertical SaaS deals, followed by financial services with 205. Real estate and government software followed with 119 and 116 deals.
Public valuations fell while deal counts rose. SEG's public SaaS index median dropped from 5.7x in 2Q25 to 3.2x EV/TTM revenue, a reset SEG ties to AI reshaping software. Private deals held up better, at a median 4.0x in 2Q26.
Who is buying
Buy-and-hold serial acquirers. Constellation Software buys vertical market software businesses and keeps them. Its site cites 1,100+ acquisitions, and its leadership page describes acquiring companies that we buy and hold forever. In 2025, cash used for acquisitions totaled $1,513 million, while organic growth was 4% for the year. That model suits small, slow-growing, high-retention software that growth investors pass on.
Public strategics. Roper Technologies deployed $3.3 billion into vertical software in 2025, led by CentralReach and Subsplash. It agreed to buy CentralReach, an applied behavior analysis software company, for a net price of about $1.65 billion, on expected twelve-month revenue of about $175 million and EBITDA of $75 million. By Axia's arithmetic from those two disclosed figures, that is roughly 9.4x revenue and 22x EBITDA, for an asset expected to grow 20%+ organically.
PE add-ons more than new platforms. PE and venture-backed buyers took part in 59% of SaaS deals in 2Q26, while direct platform investments were 6.3%, below their historical share of about 10%. A founder selling a small vertical SaaS business is most likely selling to a sponsor's existing portfolio company.
What buyers look for
Retention above 110%. SEG finds that public SaaS firms above 110% net revenue retention traded at a median 8.0x EV/TTM revenue, a 77.8% premium over the 90%-110% cohort. In vertical software, high retention usually means the product runs a core daily workflow.
Growth within the Rule of 40. SEG reports 7 of the 10 companies in the highest revenue multiple cohorts delivered 20%+ growth, so growth carries more weight than margin.
Defense against AI substitution. SEG says buyers favor purpose-built platforms for specific end markets and actively assess AI displacement risk. Bessemer reports that LLM-native vertical AI companies have reached 80% of the average contract value of traditional vertical SaaS while growing about 400% a year. Incumbents need a credible answer to that competition.
Payments and embedded financial services. Bessemer notes that several vertical software companies earn up to half their revenue from integrated payment processing. Buyers value that revenue on gross profit. At Toast, financial technology produced $1,146 million of 2025 gross profit on $5,037 million of revenue, a far thinner margin than its subscription line.
What makes a strong company
SEG describes the profile that earns outlier valuations: mission-critical platforms, high retention, strong ARR growth, and Rule of 40 or higher. For a vertical SaaS business, that usually means:
- Net revenue retention above 110%, with gross churn reported by cohort.
- A product that holds the system of record for the customer's core workflow, not an add-on tool.
- Proprietary data built from that workflow, which SEG names as a premium driver.
- Payments or other embedded financial revenue reported separately, with its own margin.
- A clean compliance file for the vertical. Healthcare software that handles protected health information is a HIPAA business associate, and so are its subcontractors. Software that touches card data falls under PCI DSS.
Valuation and deal structure
Private SaaS M&A prices on trailing revenue. SEG reports a 2025 average of 6.9x with the median clustered around 4.0x, which it calls a barbell market. In 2Q26 the median was 4.0x and the average 6.2x. No primary source publishes a private multiple for vertical SaaS alone, or for deals under $50 million. Broker-site figures that claim one could not be traced to original data and are not used here.
Disclosed deals skew large. The Roper-CentralReach price, about 9.4x revenue by Axia's arithmetic, reflects a $175 million revenue asset growing 20%+, not a typical lower-middle-market company.
Holdbacks and contingent consideration are standard tools for serial acquirers. Constellation's 2025 additional acquisitions carried $253 million of cash holdbacks and contingent consideration with a fair value of $68 million. Sellers to these buyers should expect part of the price to be deferred. To see where a specific business might land, use the valuation tool.
Outlook
Expect vertical software to keep its share of SaaS dealmaking over the next 12-24 months. Buyers want software that is hard to replace. SEG says scarce assets with differentiated data, AI capabilities, or mission-critical workflows continue to command premium valuations.
The risk is on the other side of that line. Products that automate a thin task face AI-native competitors and tougher diligence. Owners of those businesses may find a better price with buy-and-hold acquirers that value retention and cash flow over growth.
For the broader picture, see the Technology & IT Services overview and why vertical-focused buyers source differently.