Lenders reassess software investments, favoring AI-exposed firms while adjusting valuation multiples in a shifting market.
European private credit lenders are reevaluating software deals, distinguishing between companies leveraging artificial intelligence and those left behind. The sector, once a darling of 2021-2022, has seen a sharp sentiment shift, with some investors pulling back entirely while others spot opportunities in AI-driven growth.
Valuation multiples have become a key sticking point, with lenders debating whether enterprise value (EV) multiples should settle at 10-12x or remain closer to 15-18x. Market participants describe the pullback as a price discovery phase rather than a sector-wide rejection, noting that hesitation stems from valuation concerns, not fundamental risks.
Some firms, like Bridgepoint Credit, argue the retreat has been overdone, creating potential bargains. Others caution that the divide between financeable and unfinanceable software assets will persist as AI reshapes the industry.