Private equity firms Thoma Bravo and Hellman & Friedman are reportedly considering acquisitions of financial data provider FactSet. This interest comes as FactSet's shares have dropped 39% in six months, alongside similar declines for competitors like Morningstar and Gartner. The selloff is fueled by investor fears that Artificial Intelligence could replicate the core services offered by these companies, making it difficult to predict future business viability.
This AI disruption anxiety is causing private equity firms to re-evaluate potential deals. Companies that once commanded high valuations due to predictable revenues and strong profit margins are now trading at a significant "AI discount." For instance, FactSet's enterprise-value-to-EBITDA ratio has fallen considerably from previous years. While some firms may value mature, cash-generating profiles, confidence in AI not eroding pricing power is crucial.
Established subscription businesses are facing scrutiny over AI substitution risk, compressing valuations and slowing buyout momentum. The key question for private equity is whether these software models remain defensible in an AI-saturated future. Some analysts suggest that deeply embedded business process software is more likely to retain value than task-focused AI tools. FactSet is attempting to adapt, recently partnering with Anthropic to develop new AI tools, signaling a potential shift towards leveraging AI rather than being supplanted by it.