Software Deals Now Hinge on Filing Accuracy, Not Beats

Jefferies’ August software roll-up put the median public company at low-teens growth and a 22% free cash flow margin, and software M&A now turns on who can still close. Most names still beat estimates. Fewer raised guidance, and roughly half of the stocks that reported finished the session down or unchanged, so the median reaction was a shrug.

Louis Lehot, a Silicon Valley partner at Foley & Lardner, walked those figures in a September 8 client note built on Jefferies’ Quarterly Software Earnings Summary, assembled with Robert Bartlett and the bank’s Silicon Valley technology team. His read is that the public market has already decided what a lot of standalone software is worth. The next 12 months of deals will test whether sponsors and strategics can buy that inventory without the file, the earnout, or the AI diligence blowing up the close.

Public Software Has Split Into Buyers and Inventory

The median print still looks healthy. Low-teens growth plus a 22% free cash flow margin would have been a victory lap in 2022. Under that median sits a buyer class with expensive stock and real cash, and a long tail of solid businesses growing in the single digits, spending a dollar on sales and marketing to bring in 50 cents of new revenue, and trading at multiples that attract buyout shops.

THE Q2 SOFTWARE SPLIT

Megacap software, Jefferies found, is still growing faster than mid-cap peers and throwing off more cash. That gap is the map. Companies with currency can tuck in AI tools and roll up crowded categories such as security and data infrastructure. Companies without it should expect a call, and they should decide now how they will answer it.

Palantir’s Cash Machine and the Single-Digit Tail

Palantir’s second-quarter release is the extreme of the buyer class. Revenue was $1.935 billion, 93% year-over-year revenue growth, with U.S. commercial revenue at $764 million, up 149%. Adjusted free cash flow was $1.220 billion, a 63% margin. GAAP net income was $1.062 billion, a 55% margin. The company put its Rule of 40 score at 155% and raised full-year revenue guidance to $8.150 billion to $8.158 billion, which implies 82% growth, with adjusted free cash flow guided to $4.5 billion to $4.7 billion.

This quarter was otherworldly: our U.S. commercial revenue grew 149% year-over-year, our overall revenue grew 93% year-over-year, and our Rule of 40 score climbed to 155%.

Alex Karp, co-founder and chief executive, Palantir Q2 2026 release

Figma is the other named growth print, and it is not in Palantir’s league. Second-quarter revenue was $370.1 million, up 48%, the third straight quarter of faster year-over-year growth, with free cash flow of $53.2 million, a 14% margin, after Config-related sales spend. Net dollar retention sat at 136%. Full-year revenue guidance moved to $1.463 billion to $1.467 billion, about 39% growth at the midpoint. That is a real AI software business. It is also a reminder that “AI native” no longer means a double on the income statement.

When a company beats consensus and the stock does not move, the tape is saying the standalone plan is fully priced. Boards hear that, whether they want to or not. The same fade after a clean print has already shown up as a profit beat that still left shares lower in other software results this season. For the single-digit names, that shrug is the invitation.

Sponsors Have Been Circling for Three Years

Lehot says the take-private pipeline is still active, and that sponsors have been circling smaller public software companies for three years. If you run one of those businesses, expect an approach. If you are the sponsor, expect a competitive process, a real go-shop, and a special committee that has read the recent Delaware opinions.

The 2026 tape is not a straight line up. Figures compiled by PitchBook showed U.S. software platform buyouts at about $16 billion through May, 41% of software private-equity deal value, the lowest share in at least a decade, while add-ons ran about $18 billion and took roughly 45% of the value. That is a sponsor market that bought pieces, not platforms, for most of the first half.

The conversation has started to thaw. Jason Conley, chief financial officer of Roper Technologies, told an Oppenheimer technology conference in August that sponsors were moving from testing the waters to looking at actual deals, and that investment-bank pipelines were filling, even as he noted that similar signals have faded before. Strategic buyers still have stock and cash. Lehot expects tuck-in buys of AI-native tools, plus consolidation in security and data infrastructure, with larger strategic deals drawing more review time.

Take-privates still need cash flow a lender will underwrite. If AI agents cut seat counts, the same 22% free cash flow margin that looks like buyout bait can get jumpy, and that is why the legal work on these deals now sits on the same page as the model. The file, the earnout, and the AI questions are how a buyer lives with that volatility without paying last year’s multiple in cash on Friday’s close.

KKR’s $250 Million Fine Was About the File

On August 26 the Justice Department filed a proposed settlement requiring KKR to pay a record $250 million civil penalty to resolve claims that it broke Hart-Scott-Rodino rules on at least 16 deals in 2021 and 2022. The complaint was not a close call over whether those deals harmed competition. It was a process case: documents altered in at least eight filings, required papers omitted in at least 10, and at least two deals with no filing at all. Those buckets overlap, so they do not add to 16.

KKR had to make more than 100 premerger filings since 2021, the department said, and it is one of the world’s largest investment firms, with over $744 billion in assets under management. Civil penalties under the Act run at more than $50,000 per day per violation. Associate Attorney General Stanley E. Woodward Jr. called the proposed sum more than 20 times any prior HSR penalty the department has obtained. The department had sought $650 million when it sued on January 14, 2025. Under the proposed final judgment, payment is due within 30 calendar days of entry, with 18% interest on default.

This historic $250 million civil penalty, more than 20 times any prior HSR penalty obtained by the DOJ, sends a powerful message: the Department is committed to vigorous enforcement of the Act. Companies that disregard their legal obligations will face serious consequences.

Stanley E. Woodward Jr., Associate Attorney General, Justice Department press release, August 26, 2026

KKR said it strongly disagrees with that characterization, believes it acted in good faith under a process it called consistent with industry practice, and settled to end a distraction. The firm also said the civil penalty will have no financial impact on the firm, its funds, or its investors, because it will be fully reimbursed by outside law firms. The identities of those firms were not named. That reimbursement is the quiet stakeholder story inside the headline: the check may not hit KKR’s funds, but it is a bill the advisory bar will not forget when the next software buy-and-build file is assembled.

WHAT WE KNOW

• The number: The proposed civil penalty is $250 million, and the department described it as the largest HSR civil penalty it has obtained.
• The conduct alleged: Incomplete or missing filings on at least 16 transactions from 2021 and 2022, including altered documents, omitted papers, and at least two deals with no filing.
• The money trail: KKR said outside law firms will reimburse the penalty in full.

WHAT IS UNCONFIRMED

• Final entry: The August 26 papers are a proposed final judgment. Payment is due only after the court enters it, following the Tunney Act process.
• The next target: No filing names the next public software company that draws a take-private bid.
• The firms writing the check: KKR has not identified the outside counsel it says will cover the penalty.

For software dealmakers the lesson does not depend on who pays. Board decks, banker books, and strategy memos that discuss a transaction can be read as government exhibits. Write them that way. On strategic deals, reverse termination fees, litigation covenants, divestiture caps, and efforts standards are being negotiated as hard as price. A seller that takes regulatory risk should be paid for it and should make the buyer commit, in writing, to defend the deal.

A Texas Court Put the New Form Back on the Shelf

Lehot told clients the premerger rules became much more demanding last year, and that the expanded filing takes weeks, with the review clock starting later than it used to. That was true for about a year. It is not the form on the FTC’s desk now.

The commission voted 5-0 on October 10, 2024, to overhaul the Hart-Scott-Rodino form, the first major rewrite since 1978. The new form took effect on February 10, 2025. It asked for more deal-team documents, business-line descriptions that flag overlaps and supply ties, and disclosure of buyers’ investors with management rights. On February 12, 2026, Judge Jeremy D. Kernodle of the Eastern District of Texas vacated that rule in Chamber of Commerce v. FTC, holding that the agency had not shown the claimed benefits reasonably outweighed the costs. The Fifth Circuit denied a stay on March 19, 2026. The FTC’s Premerger Notification Office, in a notice updated March 23, 2026, is accepting the older HSR form and instructions that were in place before February 10, 2025, while still allowing parties to file the 2025 version if they want to.

THE YEAR THE HSR FORM MOVED

1. October 10, 2024: The FTC votes 5-0 to finalize the expanded premerger form, with DOJ concurrence.
2. February 10, 2025: The new acquiring-person and acquired-person forms become mandatory.
3. February 12, 2026: The Eastern District of Texas vacates the 2024 rule in Chamber of Commerce v. FTC.
4. March 19, 2026: The Fifth Circuit denies the FTC’s motion for a stay pending appeal, and the old form returns as the default.
5. August 26, 2026: The Justice Department files the proposed $250 million KKR HSR settlement, a process case on 2021 and 2022 filings.

The form got lighter. The enforcement did not. KKR’s alleged conduct sits in 2021 and 2022, under the old rules, and the proposed penalty still landed as a record. Software deals do not get a free pass because a Texas court put the 2025 questionnaire back on the shelf. They get a slower, more lawyered close if the documents look sloppy, and they get a faster path only if the file is clean enough that the agencies do not have to go hunting.

How Deal Lawyers Are Bridging the Price Gap

Sellers remain anchored to where they traded 18 months ago. Buyers remain anchored to Friday’s close. Earnouts, contingent value rights, rollover equity, and other contingent paper are how that gap gets bridged. Lehot has made a living litigating earnouts, and he would rather not be hired for the next one.

Draft them as though a dispute is inevitable.

Louis Lehot, Silicon Valley partner, Foley & Lardner client note, September 8, 2026

AI diligence now has a price tag attached. Almost every target calls itself an AI company. Buyers are asking, and should ask, a short list of questions that decide whether the number is cash at close or cash in escrow.

THE AI QUESTIONS THAT MOVE PRICE

• Training data: Where the data originated, and whether the target had the rights it claims.
• Open source: What license exposure sits in the model stack and the product around it.
• Customer contracts: Whether those contracts actually permit the data uses the product depends on.
• Reported AI revenue: Whether the line is a product or repackaged services with an AI label.

Sellers that can answer those questions clearly get paid more. Sellers that cannot should expect holdbacks. Acqui-hires and blitz-hires remain a way around a full merger when the asset is people, not a filing. None of that replaces a clean HSR file on a reportable deal. It is how parties keep moving when the public multiple and the private model do not meet.

Datadog and Samsara Already Left Delaware

Delaware is no longer the automatic choice. Lehot’s view has not changed: the state’s predictability is worth a great deal when a company is in a dispute. Boards that have not asked the question should expect to be asked why they have not. In the two years through 2026, more than 50 public companies left Delaware, and Delaware’s share of U.S. IPOs fell from 81% in 2024 to nearly 70% in 2025, according to a Harvard Law School Forum on Corporate Governance guide. Senate Bill 21, which created statutory safe harbors for certain controller and conflicted deals, took effect in 2025 and survived a constitutional challenge in 2026.

Software issuers are already on that list. Analysis Group’s DExit tracker records Datadog’s April shift from Delaware to Nevada on April 21, 2026, at a $45.7 billion market cap, with 57% of the vote, and Samsara’s May 28, 2026 move to Nevada at $18.4 billion, done without a stockholder vote under a controller. Those are not energy companies looking for a business-court docket. They are public software names choosing a new legal home while the take-private math is being done in the next room.

Lehot will not pick the next target or the next agency turn. What the Q2 print plus the KKR file do pick is the posture. Get the committee, the go-shop playbook, the HSR documents, and the AI data map in order before an unsolicited approach, a diligence request, or a second request shows up. The median software company is still making money. The market has already told a large slice of that group what that money is worth, and the Justice Department has told their bankers what a sloppy file can cost.

Disclaimer: This article is news reporting and analysis of public software results, merger-filing rules, and an announced civil settlement. It is informational only and does not constitute legal, investment, or transaction advice, and it is not a recommendation to buy, sell, or hold any security or to accept or reject any bid. Readers should consult a qualified mergers-and-acquisitions lawyer and a licensed financial adviser before acting on a deal, a filing, or a securities decision. Figures, case statuses, and guidance ranges reflect the cited company releases, agency notices, and court papers as published through early September 2026 and may change as judgments are entered, comments close, or later earnings revise the tape.