Kroll report kills Rule of 40: Growth now trumps margins in 2026 software M&A

The Gist

• Kroll data shows growth matters more than margins in 2026 software M&A
• Cursor's $60B deal accounts for half of H1 2026's $240B total deal value
• Public multiples tick up but valuations vary wildly between similar subsectors

• The Rule of 40 is no longer a reliable framework for software valuations, as growth now trumps margins in 2026 software M&A.
• The software M&A market is highly concentrated, with a single deal (Cursor) accounting for 64% of Q2 2026 deal value.
• Valuations vary significantly between software categories with similar growth and margin profiles, indicating buyers are pricing factors beyond the Rule of 40.
• Profitability has become table stakes in software valuations, with growth being the primary differentiator.
• Corporate acquirers are driving M&A activity, paying premiums for AI capabilities, proprietary data, and workflow positions.
• The premium in valuations is shifting toward smaller companies with specific, defensible positions rather than scale alone.

• Focus on growth over margins to maximize valuation, as profitability is now table stakes.
• Position your company in a category that commands higher multiples, as framing matters more than growth or margin.
• Leverage AI capabilities, proprietary data, or workflow positions to attract corporate acquirers.
• Emphasize defensible positions over scale alone, as premiums are shifting toward smaller companies.

• 2,672 transactions (Annualized 2026 software M&A volume, the second-highest count ever.)
• $240 billion (Annualized announced deal value for 2026, with $120 billion attributed to the Cursor deal.)
• 64% (Cursor's share of Q2 2026 software deal value.)
• 25% (Increase in private M&A EBITDA multiples.)
• 6.0x (Median EV/LTM revenue for strategic acquisitions in H1 2026.)
• 20.2x (Private EBITDA multiples in 2026, approaching the 2021 record.)