Too SaaSy on the Marks

Private equity has yet to properly mark its software assets—are valuations getting too Saasy? Last month, Apollo’s John Zito told UBS clients that he believes “all the marks are wrong.” According to Zito, many of these investments were underwritten on assumptions that no longer hold, including high growth rates, durable margins, and pricing power that may now be disrupted by AI and a rapidly shifting competitive environment. In downside scenarios, recoveries could fall to as low as 20–40 cents on the dollar, with 2018–2022 vintage assets particularly at risk if they find themselves on the wrong side of the AI revolution. Apollo’s credit business has limited exposure to software—less than 2% of total AUM—and no exposure to PE sponsor-backed companies. Zito’s comments highlight a broader concern about how private equity has historically priced software, often reflecting optimism rather than underlying credit or operational realities. By questioning the reliability of these marks, he is effectively calling out the risks hidden beneath glossy metrics like ARR and recurring revenue, and the potential for leveraged investments to underperform if assumptions prove too aggressive. High marks were easy to hand out. The hard math is just arriving.