The State of the Tech IPO Market: What It Means for the Broader M&A Landscape

Over the past five years, public markets for technology and software companies have undergone dramatic shifts, from the pre-pandemic stability to the exuberance of 2020–2021, and the sharp contraction that followed. While IPOs sit outside the scope of most middle-market firms, the health of public markets still matters: valuations, investor sentiment, and liquidity cycles in the IPO arena often cascade down to shape private company deal dynamics.

Pre-COVID: A Healthy, Rational Market

In 2019, the IPO market was steady and well-functioning. While issuance volumes were slightly below prior years, high-quality software and SaaS businesses with predictable growth and a clear profitability narrative were rewarded with healthy valuations. Investor appetite favored scalable, cash-efficient business models, and institutional demand helped establish valuation discipline.

This period effectively set the baseline for what “normal” looked like, strong demand for differentiated software assets, tempered by rational pricing and sound fundamentals.

2020–2021: The Expansion and SPAC Surge

The onset of COVID-19 upended many parts of the economy but created ideal conditions for technology listings. As remote work, digital collaboration, and cloud adoption accelerated, capital poured into software names positioned to benefit from these structural shifts.

Simultaneously, record-low interest rates and a historic wave of liquidity encouraged investors to chase growth stories aggressively. The emergence of Special Purpose Acquisition Companies (SPACs) offered an alternative route to the public markets, allowing younger or less proven tech businesses to list quickly.

From late 2020 through 2021, IPO and SPAC activity hit record highs. The market was characterized by inflated valuations, reduced diligence, and a broad assumption that high revenue growth would eventually translate into profits. Many companies that went public during this period later struggled to sustain performance once investor sentiment normalized, a reminder that market timing often amplifies both success and risk.

2022–2024: The IPO Winter

As interest rates rose and macroeconomic uncertainty intensified, risk appetite evaporated. The “IPO window” effectively closed in 2022, marking the steepest decline in issuance in over a decade.

Public investors shifted focus toward profitability and cash flow visibility, penalizing companies that had previously traded on growth at all costs. The SPAC market collapsed almost entirely, and software valuations compressed sharply across both public and private markets.

For private tech companies, this contraction extended holding periods, and delayed liquidity events. Strategic buyers and private equity firms benefited from the repricing, often acquiring quality assets that might otherwise have pursued an IPO during a stronger market.

This period also reinforced the importance of capital efficiency. Companies that could demonstrate sustainable growth found acquisition interest even in a slower environment, while those reliant on aggressive fundraising faced limited options.

2025: Signs of a Thaw

After nearly three years of subdued activity, 2025 has shown the first signs of stabilization. Interest rates have begun to ease, inflation pressures have moderated, and investor sentiment toward growth assets has cautiously improved.

A handful of high-profile tech IPOs, most notably Figma, which finally reached the public markets after its previously terminated acquisition by Adobe, signaled renewed investor appetite for category-leading software names. The reception to Figma’s debut underscored that the IPO market is not closed; rather, it is selective. Companies with defensible moats, predictable growth, and clear profitability pathways are once again finding an audience.

The broader rebound has been aided by the rise of artificial intelligence. AI remains a dominant investment theme across public and private markets, creating tailwinds for companies positioned within AI infrastructure, data management, or enterprise applications. Investors are selectively re-engaging in growth stories where the AI narrative is backed by genuine commercial traction.

Looking Ahead: What’s on the Horizon

While it remains early, several prominent companies are expected to test public markets in the coming quarters. OpenAI has been the most discussed potential listing, given its scale and influence across the AI ecosystem. Canadian-founded Cohere has also hinted at long-term IPO ambitions as it continues expanding globally.

Moreover, Valsoft, one of Canada’s leading vertical-market software consolidators, has maintained its intent to go public. While timing remains uncertain, its trajectory illustrates the growing maturity of Canadian software firms that have scaled primarily through M&A.

Implications for M&A in the Middle-Market

For most mid-market technology companies, an IPO is not a direct consideration. However, the state of public markets still influences deal activity in several indirect but meaningful ways:

Valuation Anchors: Public software multiples often serve as benchmarks for private market pricing. A recovery in public comps typically supports stronger valuations in M&A transactions.

Liquidity Cycles: Healthier public markets improve sentiment among investors and acquirers, increasing available capital for both strategic and private equity-led acquisitions.

Exit Path Clarity: As IPOs become more viable for larger software companies, strategic buyers may face renewed competition for scaled assets, encouraging earlier-stage M&A within the lower middle market.

Selective Optimism: While market conditions are improving, discipline remains. Buyers continue to focus on resilient revenue models, recurring cash flow, and accretive integration opportunities.

Conclusion

The IPO landscape for technology and software companies has evolved from exuberance to correction and now to cautious optimism. The market remains far more selective than during the 2021 boom, but sentiment is improving as rate pressures ease and AI continues to capture investor attention.

For M&A participants, this renewed stability is positive. A healthier public market sets valuation benchmarks, restores confidence, and typically leads to greater deal flow throughout the private market ecosystem.

While few lower middle-market software companies will ever pursue an IPO directly, understanding the state of public markets remains essential, because when the top of the market strengthens, opportunity tends to flow downward.