Kroll's mid-2026 software M&A report covers deals through June 30 and the data says Rule of 40 is mostly dead as a valuation tool.
The headline number: deal volume is tracking toward 2,672 transactions, second highest on record. But strip out the $60B Cursor acquisition and total deal value drops to $120B, near the lowest in a decade. More companies are getting acquired. Buyers are paying less for most of them.
Growth cliff got steeper, margin stopped mattering
Public software multiples by growth bracket:
- Below 0%: 2.4x revenue
- 0% to 10%: 3.1x
- 10% to 20%: 4.1x
- Above 20%: 7.2x
That 20% growth threshold is worth a 76% multiple premium over the bracket below it. Miss 20% growth and your valuation gets cut in half regardless of margin.
The margin side broke differently. EBITDA margins above 25% add no valuation premium. The market pays the same multiple for 25% margin as it does for 45% margin. Below 25%, every point costs you. Above it, optimization does not help your exit price.
Category beats fundamentals
Two subsectors with identical Rule of 40 scores can trade 73% apart:
- Engineering software: 46% Rule of 40, trades at 5.2x revenue
- HCM: 46% Rule of 40, trades at 3.0x revenue
Collaboration tools and vertical software both run 42% Rule of 40. Collaboration gets 3.1x, vertical gets 3.7x.
Kroll does not explain the gap. Two theories fit: revenue durability (EDA and CAD have 20-year switching costs, payroll is commoditizing) or AI positioning (buyers pay more for categories where agents read from systems of record, less for categories where agents replace seat count).
Either way, which comp set you get assigned to matters more than several points of growth or margin. Salesforce paid 9.5x for Fin in a category where public comps trade at 1.8x. Positioning changed the multiple 5x.
What this means for ANZ teams
If your company is below 20% growth, adding margin does not save the valuation. If you are above 25% margin, more optimization does not help the exit. The strategic work is growth to 20%+ and positioning into a category buyers want.
For AEs and sales leadership: quota is getting set against these benchmarks. If your company is in a lower-multiple category, expect buyer conversations to reflect that. If you are in engineering, security, or ERP categories, your equity is worth more than the same percentage at a marketing or CX company with identical ARR.
Kroll tracks this quarterly. The full report is public.