The software roll-up did not die when growth stocks derated. It changed banks. Instead of a high-multiple listing and a cheap revolver, more platforms are being stitched together with direct lending that looks, on paper, like conservative cash-flow finance and, in practice, like a shadow equity check.
Sponsors still love vertical software: sticky customers, invoice-driven collections, and a story about cutting two CROs after the third add-on. What changed is who is willing to underwrite the next deal when the IPO window is a rumor and banks want amortization.
Why lenders like the collateral
Recurring revenue is easier to model than a factory. Churn shows up in the cohort before it shows up in the borrowing base. That is catnip for credit funds that built teams to read SaaS metrics rather than shipping manifests.
The structure is familiar: unitranche, a loose covenant on leverage, a tighter one on liquidity, and an equity cure. The novelty is operational. Lenders now ask for product-level retention, net revenue retention, and a map of where AI features are bundled versus billed. They are not becoming product managers. They are becoming allergic to “AI” as an EBITDA add-back.
If the add-on cannot share a billing system in 90 days, it is not a synergy. It is a second company.
The risk that does not fit the CIM
Integration risk is the silent covenant. Two products with similar logos and incompatible data models will not produce the cost takeout in the model. Credit agreements still treat “cost synergy” as a management slide, not a test.
There is also refinancing risk with a software accent. If rates stay higher for longer, the roll-up that worked at six turns on a 4% coupon looks different at the same turns on a coupon that eats the free cash flow that was supposed to fund the next tuck-in.
What to watch
Watch hold periods, not press releases. If platforms start selling divisions instead of adding them, the credit cycle in vertical software has turned. Watch also for lenders putting observers in operating reviews. That is the tell that the fund thinks it bought a business, not a coupon.
For operators, the implication is simple. The cheap equity era trained founders to grow into a multiple. The private-credit era trains them to grow into a coverage ratio. Those are different companies.