A 2025 Retrospective and Predictions for 2026 From Jeff Cook

At the beginning of 2025, I had predicted that 2025 would become the busiest year on record, and while that prediction held, I did not foresee that it would dramatically outpace the previous records established in 2021.

The year saw more than $20 billion in deal volume, which was about 1.5 times more than in 2021. The year was also marked by a healthy diversity of activity at every size range, private equity-driven transactions, strategic exits and several major growth rounds.

The beginning of the year inevitably yields many conversations with investors and operators and the most common question that I’ve been asked is “why was 2025 such a busy year for gov tech?” especially given that broader M&A and capital markets did not see the same uptick in activity. I believe there were a few major dynamics that explain it, which also set the stage for what we expect in 2026.

As I’ve discussed extensively in the five years writing this column, private equity (PE) has and will continue to be a major driving force in the evolution of the gov tech market. Headed into 2025, there were two major themes that dominated the conversation around private equity: The first was that PE overall was behind on investing capital after a slower 2022–2024, and the second was that limited partners (the investors in private equity funds) were looking for a return of capital. In short, there was pent up demand to invest, and there was pent up demand to sell and return capital to fund investors.

That dynamic coincided with a large number of gov tech businesses that were purchased by private equity in the 2019–2021 time frame that were coming to the natural “exit timeline” of five to seven years, the duration or “hold period” at which private equity firms consider exiting their investments. Adding further fuel to the fire was the fact that, post-COVID-19, gov tech businesses on average performed well, buoyed by the funding and regulations that accelerated the modernization in every corner of the market, resulting in companies that grew well and met or exceeded their forecasts. And finally, the demand from buyers is as strong as it has ever been, with more investors interested and educated about the market, creating a deep pool of buyers keenly interested in investing in gov tech.

So, in short, we entered 2025 with a large number of businesses that were performing well, had received strong interest from buyers and had sellers that were motivated to crystallize their returns — the basic ingredients for an active market. From the outset of last year, it was clear these dynamics were going to drive a record year, as the companies that decided to pursue a transaction were met with fast-moving processes, near-record valuation multiples due to highly competitive processes and overall solid outcomes. Such an increase in activity tends to portend more activity, which served to pull even more sellers into the market attracted by the high valuation multiples and relentless interest from buyers.

Alongside the private equity machinery that was at work was the opening of the venture and growth markets in gov tech, especially in the public safety market. Last year saw a huge uptick in major growth rounds from VCs that have historically shied away from gov tech, a further testament to the growth the market is seeing. Today, more investors than ever believe that gov tech companies can be hypergrowth businesses capable of generating the venture-scale returns required to attract brand-name VCs, a trend reinforced by the almost weekly influx of growth capital into the market.

Beyond how deal volume trended, another major takeaway from 2025 was how investors recalibrated their due diligence on gov tech businesses. Naturally, investors focused on the basics such as addressable market, competition, retention and other fundamentals of the business. However, the amount of time focused on new topics such as the risk of regulatory change (e.g., DOGE) and the opportunity and threat posed by AI have become table-stakes questions that we believe are here to stay for the long term, a topic of which I’ll go into further detail in a subsequent column.

REVIEWING 2025 PREDICTIONS AND MAKING A FEW FOR 2026

A quick analysis of my 2025 predictions:

1. 2025 sets the new record in gov tech: 2025 saw $20.5 billion in deal volume, $7 billion more than the previous record of $13.1 billion set in 2021.
2. Record valuations are established: We saw new record-high multiples in both public administration and public safety last year, particularly as more venture capital found its way into the market.
3. Private equity continues to drive 80 percent-plus of activity: From our internal analysis, private equity was involved in approximately $15 billion of the $20.5 billion of deal activity in 2025 — 73 percent.
4. Transformational acquisitions happen (e.g., two $1 billion-plus valued businesses merged): While this did not happen, we anticipate we’ll see some of this in 2026.
5. Public administration outweighs public safety: Public administration was a more active segment in a photo finish. While public administration saw more deals, public safety saw many of the year’s larger deals.

With 2026 underway, we are anticipating continued momentum though it will be hard to eclipse the level of activity from last year. Currently, the market is (relatively) quiet compared to any quarter last year, in part explained by the fact that many of the 2019–2021 vintage of investments transacted last year. We’re now moving into the 2022+ vintage of investments where investing activity started to fall off from the highs in 2021, so there are fewer candidates for exits. But that said, there is still very much the perception (and reality) that a window is open for great deals in the gov tech market, which will likely translate to another busy year but not at the levels of what we saw in 2025.

So with that, a few predictions for 2026:

1. 2026 deal activity will exceed $10 billion and ranks No. 3 in terms of activity, behind 2025 and 2021.
2. The year will be carried by a few significant deals and a larger number of smaller (sub-$200 million value) deals.
3. Valuation multiples will stay in line with the averages set in 2025.
4. New records will be set for the amount of growth capital invested in gov tech, with a significant uptick in public administration (which historically has seen more episodic activity).
5. A valuation spread will emerge between companies that have embraced AI operationally and in their product versus those that haven’t (such valuation spread has been imperceptible in prior years).