Splunk, a cybersecurity and data analytics company, had been in the process of transitioning from software licensing to subscription-based revenue when it recently announced its sale to Cisco, marking the third-largest software acquisition in history.

The move underscores the allure of subscription-focused peers like Elastic, Datadog, Crowdstrike Holdings, and Dynatrace to technology conglomerates such as Microsoft, Adobe, and Oracle. These firms are grappling with corporate customers’ cost-cutting endeavors in response to market dynamics. Although Microsoft, Adobe, and Oracle did not immediately respond to requests for comment, the appetite for similar acquisitions appears palpable.

The improving outlook for software mergers and acquisitions brings relief to dealmakers, as tech sector activity had seen a 61% drop in the first eight months of 2023, with $231.5 billion worth of deals, according to LSEG data. Private equity firms had dominated software sector deals over the past year, facing limited competition from technology giants. However, Cisco’s acquisition of Splunk could embolden tech companies to follow suit.

The Federal Reserve’s decision to halt interest rate hikes has provided acquirers with increased funding cost certainty, a factor that aids dealmaking. This positive environment, coupled with attractive valuations and stock performance, could indeed pave the way for a flurry of software industry acquisitions. A surge in the Nasdaq 100 index and a brighter business outlook have boosted confidence among tech companies for transformative transactions. This trend may lead to an impending tidal wave of software M&A, as experts predict.