Your Favorite Software Was Just Acquired by Private Equity

It’s a quiet but powerful trend reshaping the digital tools we rely on every day. By some estimates, as many as 70% of software company buyouts involve private equity (PE) firms—a trend that peaked during the 2020–2021 era of cheap credit and sky-high valuations. This means the critical software that runs your business is increasingly owned not by its founding visionaries, but by investment managers. This is more than a simple change in ownership; it’s a fundamental transformation that redefines a software product as a financial asset.

While headlines focus on the deal size, the real story for customers happens in the months that follow. This article moves beyond the financial news to distill five of the most impactful, and often surprising, truths about what happens when a private equity firm takes over your software vendor. These are not isolated events, but interconnected symptoms of a single strategic shift—one that is critical for any business to understand.

1. Brace for Impact: The Playbook Often Starts with Price Hikes and Support Shake-ups

When a founder’s product is acquired by a private equity firm, the motivation shifts decisively from a passion for solving a problem to the optimization of EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). To achieve aggressive growth targets, the new owners execute a familiar playbook with immediate, customer-facing consequences.

This playbook is heavily weighted toward operational cost-trimming. Data from a Harvard Business School study of PE firms reveals that while 35.6% expect cost reductions to be an important source of value before an investment, that figure jumps to 47.4% after the deal closes. This often translates into layoffs, with support and customer success teams frequently downsized. Trusted contacts and established service levels can disappear with little warning.

Simultaneously, raising prices is one of the fastest ways to meet revenue goals. Customers may suddenly face significant contract changes, including restructured license tiers, forced migrations to more expensive plans, or steep price increases on short notice. These moves, designed to improve financial health, directly impact your budget and turn a stable vendor relationship into an uncertain one. This intense focus on short-term financial metrics inevitably creates downstream pressure on other parts of the business, starting with the engine of future growth: innovation.

2. The Innovation Paradox: Why PE's Efficiency Obsession Can Stifle R&D

Many private equity firms approach Research & Development with an "efficiency paradox," treating it like a factory where a specific investment should produce a predictable number of features, or "widgets." This mindset views innovation as just another operational expense to be managed and optimized for productivity. However, true innovation is not an assembly line, and this approach can have severe consequences for the product.

Analyses of recent software deals reveal common operational gaps that PE firms view as opportunities for imposing financial discipline, such as the fact that 66% of acquired companies lacked KPIs to track R&D performance and 30% did not follow leading practices for product roadmap governance. While measuring performance is important, an obsessive focus on efficiency can stifle the very creativity required for long-term growth.

By managing innovation costs as they do any other operational expense, companies miss out on leveraging R&D as a true business partner. The results are often a compromised product-market fit, reduced innovation, and lack of adaptability to changing market dynamics.

This de-emphasis on organic, long-term R&D often leads firms to pursue growth through another means: acquiring it.

3. The "Buy and Build" Strategy: It's Not Just About Cutting Costs

Instead of just cutting costs, PE firms often employ a "buy and build" strategy to achieve rapid scale. They use the acquired software company as a "platform" to purchase smaller competitors, aiming to create a market-leading entity, achieve economies of scale, and generate opportunities for cross-selling across a newly expanded customer base.

This strategy can be executed aggressively. For example, under the ownership of Thoma Bravo, property tax software provider Manatron grew its earnings by a factor of almost 5x through internal growth and six strategic acquisitions. In another instance, Catalis, a government SaaS provider backed by TPG and PSG, acquired Axiomatic as part of its stated commitment to offer a growing suite of solutions.

The strategic goal is a larger, more dominant company, but the reality for customers is often a fragmented and disjointed product. An EY analysis found that a majority of acquisitive companies ended up with product portfolios that were not cohesive or unified. This failure to integrate acquisitions hinders the customer experience and undermines the very cross-selling potential that justified the strategy, leaving users to navigate a patchwork of poorly connected tools.

4. The Hidden Conflict: When Your Owner Is Also Your Lender

In a strategic move that blurs the lines between owner and creditor, the modern private equity playbook increasingly involves playing both sides of the deal. The relationship between private equity (PE) and private debt (PD) has become deeply intertwined, with major alternative asset managers now operating across a company’s entire capital structure as both equity sponsors and lenders.

This dual role creates significant, and often opaque, conflicts of interest. It gives fund managers access to confidential, price-sensitive information without being subject to the strict insider trading regulations of public markets. It also allows them to maximize fee generation from corporate events. During a financial restructuring, for instance, a single asset manager can act as the owner, the lender, and even the acquirer, charging fees at every stage. This creates a powerful and inescapable hold over the portfolio company.

A welcome upside to developing multiple relationships with portfolio companies is to hold them hostage during periods of negotiation and maximize fee generation from any corporate event such as a financial restructuring or to amend and extend loans.

This intense pressure to extract value through financial engineering and aggressive sales can lead to a dangerous gap between promises and performance, culminating in the ultimate risk for a customer: catastrophic vendor failure.

5. When Promises Break: The High Stakes of Vendor Failure

The pressures imposed by the private equity model—cost-cutting, fragmented product portfolios, and a relentless drive for revenue—can converge into a cautionary tale of vendor failure. When a vendor cannot deliver on its contractual obligations, the consequences for the customer can be severe, leading to costly and disruptive legal disputes.

A clear example is the lawsuit filed by the City of Franklin, Wisconsin, against Accurate Appraisal LLC. The city alleges the vendor misrepresented its experience and the capabilities of its Computer Assisted Mass Appraisal (CAMA) software. The formal complaint details a catastrophic breakdown, claiming the vendor "failed to comply with industry standards," "did not conform to best practices," and delivered data that "did not meet the IAAO Standard on Data Quality." The city was ultimately forced to take legal action to recover from what it deemed a complete failure of performance.

Legal experts note that such disputes often stem from a "material breach," a violation of the contract so significant it defeats the purpose of the agreement. For customers like the City of Franklin, this isn't an inconvenience—it's a failure that can undermine core operations, trigger significant financial damages, and erode public trust. It represents the logical endpoint when sales promises, driven by financial targets, far outstrip a product's true capabilities.

From Product to Asset

When your software vendor is acquired by a private equity firm, its DNA is fundamentally altered. The company's primary focus shifts from building the best possible product to optimizing a financial asset for a five-to-seven-year exit. The operational playbook—price hikes, efficiency-driven R&D, fragmented platform acquisitions, and opaque financial engineering—are not random acts. They are the predictable outcomes of a strategy designed to generate a maximum return for investors. For customers, these symptoms manifest as higher costs, reduced support, stalled innovation, and, in the worst cases, catastrophic failure.

As private equity continues to reshape the software that runs our world, what does it mean for the future of innovation when the primary goal is not just to build the best product, but to build the most profitable asset?