Market Performance

May was a strong month for the B2B software space, with our universe of 250+ publicly listed companies in North America and Europe gaining nearly 10% in market capitalization. This recovery followed a turbulent start to the year and was largely in line with broader macro-driven rebounds observed in the S&P 500 and NASDAQ.

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Despite this monthly surge, year-to-date performance remains flat, with the sector oscillating between recovery and caution. Segments tied to supply chain management and procurement saw particularly strong performance. As part of our extended scope, Dedale is now also tracking IT services companies, acknowledging their growing importance and distinct valuation profile compared to pure software players. ‍

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Market Valuations

Valuations rebounded in May:

• EV/Sales multiples rose 9% month-over-month to 6.2x, closing in on the 10-year average of 6.4x.

• EV/EBITDA multiples also rebounded to 24x, up from a recent low of ~20x.

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High-growth companies (>20% revenue growth) led the valuation recovery, now averaging 11.2x EV/Sales, and are the only cohort with valuation gains year-to-date. In contrast, mid-growth (10–20%) and low-growth (<10%) companies sit at 7.3x and 4.1x respectively.

Free cash flow margins have remained flat at just under 20%, and while sales growth for the broader software universe hovers just above 10%, no re-acceleration is currently observed.

Geographically, North American companies outperformed, now trading at a 54% premium over European peers (6.7x vs. 4.4x EV/Sales), reflecting a shift back to perceived market safety amidst geopolitical headwinds.

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Deal Flow

After a strong Q1, deal momentum slowed in Q2 due to geopolitical uncertainty. While large-cap buyouts saw a pullback, small and mid-cap transactions remained resilient, especially in vertical software and aggregator-led consolidations.

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Key deals this month included:

• Vista Equity’s $2B acquisition of Acumatica, a major ERP player in manufacturing.

• Wolters Kluwer’s $400M acquisition of Brightflag, highlighting AI’s growing role in legal tech.

• E2open’s acquisition by a supply chain platform, valued around 3.5x NTM revenue and 10x EBITDA, signaling a value-based approach to consolidation.

• Salesforce’s return to M&A with its $8B acquisition of Informatica, reinforcing its strategy to dominate cloud data infrastructure.

• We continue to see strategic and financial acquirers actively pursuing deals—especially vertical consolidation plays and AI-focused capabilities.

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What to Watch

Strong earnings season

May earnings were overwhelmingly positive, with most software players meeting or exceeding expectations. Yet few raised full-year guidance, reflecting management caution in a still-uncertain macro context.

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Notable names:

• Cloudflare and Snowflake received strong market support after raising guidance.

• Azure’s 35% growth (16pts from AI) outpaced AWS (17%) and Google Cloud (28%), signaling Microsoft’s strength in AI-driven cloud adoption.

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Segment-specific highlights

• HCM & CFO Software: Workday (+13%) beat expectations but guided conservatively, while BlackLine and Dayforce raised outlooks. Workiva underperformed due to stagnant guidance despite 17% growth.

• CRM & Marketing: The Trade Desk (+25%) gained on AI adoption. Shopify surged (+27%) on rising merchant revenue, while Block underperformed with a 3.1% revenue decline.

• Observability & DevOps: Datadog (+25%) and Dynatrace (+17%) continued to grow, though Dynatrace saw slight deceleration.

• Cybersecurity: Palo Alto (+15%) and Cloudflare (+27%) performed well, with Cloudflare securing a $100M developer platform contract.

• Data Infrastructure: Palantir (+39%) and Snowflake (+15%) stood out—both beating estimates and raising guidance on the back of AI-enabled platforms.

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Investment watchlist

Top names we are actively following:

• ServiceNow: +40% over 2 months, expanding across 33 segments. Despite a high valuation (>40x), long-term upside remains.

• Datadog: Growing at scale with strong upside based on current multiples.

• GitLab: High growth with a discounted valuation (7.2x), well positioned against GitHub.

• Snowflake: Positive re-rating in valuation reflecting recent strong execution.

• HubSpot: More opportunistic given recent derating and stable market traction.

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