AppDev Market Update – August 2025

AI Adoption Buoys Services Segment M&A in the AppDev Market

The Application Development (AppDev) & Deployment sector was critical in the genesis of artificial intelligence (AI) and has continued to be at the center of its rampant adoption. Although AI’s use cases have expanded dramatically, software programmers initially created AI to drive coding efficiency and performance. The sector’s proximity to AI since its formation has reshaped nearly every aspect of the application development process and has become rooted in acquirers’ and growth capital providers’ investment theses. Merger and acquisition (M&A) and equity financing activity in the AppDev market have remained elevated to date, largely driven by heightened appetite for AI capabilities. While the AppDev M&A market initially favored AI software providers, AI-enabled services companies have drawn substantial interest through year-to-date (YTD) 2025.

The rapid adoption of AI in the world of application development has created massive opportunities for AppDev services companies to provide better applications, faster and cheaper. AI isn’t replacing coders, it is making them better and their services more accessible.

David DeSimoneManaging Director, Capstone Partners

AppDev Services Providers Embrace AI to Drive Efficiency, Revenue, and Profitability

Services providers in the AppDev & Deployment sector have increasingly embraced AI to drive programming efficiency and accuracy. Of note, 92% of U.S.-based developers surveyed use AI coding tools, according to GitHub’s 2023 Developer Survey.¹ Additionally, more than half (53%) of developers reported heightened productivity as a result of these coding tools, and 70% saw significant advantages regarding code quality, completion time, and incident response. Code generation has been the primary use case of AI within application development, with developers commonly leveraging machine learning (ML) tools to interpret natural language descriptions and produce or complete code. Programmers have also utilized AI to enhance debugging/testing, continuous deployment pipelines, and project management and documentation automation. The culmination of these efficiencies has accelerated application development timelines at reduced costs, resulting in heightened revenue and profitability gains for many services businesses in the sector. Cisco Systems (Nasdaq:CSCO), one of the largest information technology (IT) and digital transformation businesses globally, has enjoyed robust revenue gains at the hand of its AI transformation services. Cisco’s AI infrastructure orders surpassed its $1 billion goal a quarter early, with fiscal Q3 2025 orders exceeding $600 million, according to the company’s earnings release.² As a result, Cisco’s total fiscal Q3 2025 revenue and gross margin increased 11% and 12% year-over-year (YOY), respectively. Many public strategics in the sector have been able to build AI capabilities organically; however, M&A has proven to be a key strategy for sponsors and middle market operators.

AppDev Market M&A Volume and Valuations Continue to Ascend

M&A activity in the AppDev market has shown no signs of slowing, supported by a persistent pool of private strategic and private equity (PE)-backed acquirers. Sector transaction volume has ticked up 1.3% YOY to 238 deals in YTD 2025. While this marks a modest YOY rise, deal flow to date has kept pace with the record level witnessed in 2024. Strategic acquirers have continued to comprise the majority (64.3%) of sector transactions YTD, led by private strategics (44.5%) rolling up middle market competitors to gain scale and AI capabilities. Sponsor-backed buyers have been the second-most active acquirer group, accounting for 26.9% of sector deals to date. However, PE platform transactions in the AppDev market have risen 23.5% YOY to 21 deals YTD. Robust dry powder levels, interest rate stabilization, and an easing Broadly Syndicated Loan (BSL) market have supported PE firms’ ability to pursue scalable platform opportunities in the space. Of note, the total number of BSL-funded PE leveraged buyouts in the U.S. spiked 75% quarter-over-quarter (QoQ) in Q1 2025. Sponsors have namely targeted sector participants with asset-light business models and strong levels of recurring revenue to ensure a healthy return upon exit.

AppDev market participants have continued to elicit healthy M&A pricing as buyers have demonstrated a willingness to acquire scalable technology products and services providers with advanced coding capabilities. Sector transaction multiples have averaged 5.1x EV/Revenue and 19.9x EV/EBITDA in YTD 2025 compared to 3.2x EV/Revenue and 17.3x EV/EBITDA in the prior year period. In addition, total disclosed deal value in the space has jumped 144.4% YOY to $49.9 billion in YTD 2025. While this figure has been inflated by Alphabet’s (Nasdaq:GOOGL) announced acquisition of cloud security provider Wiz for $32 billion (March 2025), North America has undoubtedly led M&A spend in the AppDev market. Excluding the Alphabet/Wiz transaction, North America-based targets have comprised 93% of total disclosed sector deal value to date, providing a favorable backdrop for continued stateside consolidation through year-end 2025.

Services Segment Leads AppDev Market M&A, AI Fuels Heightened Buyer Interest

The Services segment of the AppDev market has continued to account for the majority (59.2%) of sector M&A targets YTD, led by custom application development and AI transformation services providers. Additionally, Services segment transaction volume to date has risen 4.4% YOY compared to a 3% YOY drop in the Software segment. Many services businesses have enjoyed balance sheet expansion with the adoption of AI, which has made the space increasingly attractive to strategic and financial acquirers. This has been especially appealing to sponsors, with total PE deals in the segment rising 10% YOY to date. AI-accelerated application delivery timelines have also brought buyers to the segment in hopes of increasing workload capacity. Notably, sector M&A transactions targeting AI-enabled services companies have risen 175% YOY in YTD 2025 compared to a 25% YOY increase in deals targeting AI software businesses.

M&A valuations in the Services segment have climbed in tandem with heightened buyer interest, with many acquirers submitting competitive bids for AI-centric participants. To date, the average segment purchase multiple has risen by nearly three turns YOY to 17.2x EV/EBITDA. This marks the highest average Services segment M&A multiple on record. AppDev services companies with demonstratable revenue growth and AI capabilities have often commanded strong acquirer appetite at premium valuations, illustrated in the notable transactions below.

• Improving Corporate Services Acquires DragonSpears (May 2025, Undisclosed) – Improving Corporate Services acquired DragonSpears in May 2025 for an undisclosed sum. Improving Corporate Services offers technology consulting, software development solutions, and various training programs. DragonSpears provides development and operations (DevOps) and cloud-native software development services, leveraging AI to procure advanced application lifecycle management analytics for clients. The transaction is expected to increase Improving Corporate Services’ annual revenue beyond $285 million and expand the company’s market share across the Midwest, according to a press release.³ The acquisition merges closely aligned services and values that pave the way for enhanced synergies. DragonSpears marks Improving Corporate Services’ second acquisition in YTD 2025 focusing on AI-driven software development services, signaling a shift in the AppDev market toward intelligent and automated solutions.
• Coforge Acquires Rythmos (March 2025, $48.7 Million) – In March 2025, Coforge (NSEI:COFORGE) acquired Rythmos for an enterprise value of $48.7 million. Coforge utilizes its proprietary Coforge Quasar AI platform to provide custom application development and cloud computing services. Rythmos offers AI-driven DevOps and AI/ML consulting services. The company experienced three consecutive years of annual revenue growth, with Rythmos’ total 2024 revenue reaching $25.3 million, according to a press release.⁴ The deal is expected to enhance Coforge’s AI capabilities and client base in the Travel and Healthcare verticals. Coforge secured a 13-year AI development contract with Sabre (Nasdaq:SABR) worth ~$1.6 billion immediately preceding the transaction, according to the press release. The acquisition of Rythmos is slated to be an essential component in Coforge’s ability to accelerate application delivery timelines for Sabre.

Equity Financing Accelerates in the AppDev Market, Services Segment Increasingly Attracts Growth Capital 

Equity financing activity in the AppDev & Deployment sector has continued to build on the gains witnessed in 2024. In YTD 2025, total sector growth capital raised has increased 9.1% YOY to $11.3 billion. The number of equity funding rounds in the space has also increased, rising 7.8% YOY to 110 deals YTD. Growth capital investors have increasingly come off the sidelines with normalization of valuations, namely targeting mature players with clearer exit visibility. This has been evidenced by the median pre-money valuation for sector startups increasing 16.3% YOY to $244.2 million in YTD 2025. Software participants have continued to draw the majority (70.1%) of sector growth capital raised to date, largely driven by attractive recurring revenue profiles. However, total equity funding raised in the Services segment has increased 13% YOY in YTD 2025. This spike has been primarily driven by cloud-based and DevOps services companies that provide integrated offerings.

AI has become a cornerstone of growth capital deployment in both the Software and Services segments of the AppDev market. AI-centric startups have captured $6.1 billion (54.3%) of total sector equity financing dollars to date, notching a 22.6% gain compared to YTD 2024. The continual advancement of AI is slated to keep growth capital investors active in the sector, with mature software and services players garnering outsized valuations. Notable sector equity funding rounds targeting AI-enabled services startups are outlined below.

• Nerdio Raises $500 Million in Series C Funding (March 2025) – In March 2025, Nerdio raised $500 million in Series C funding for a post-money valuation of ~$1.2 billion. New investor General Atlantic led the round, joined by Lead Edge Capital and StepStone Group (Nasdaq:STEP). Nerdio provides cloud-based IT services to deploy, manage, and optimize virtual desktops in the Microsoft Azure environment. The company infused AI into all its offerings over the past year to automate the management of complex cloud spaces, according to a press release.⁵ As a result, Nerdio recorded an annual recurring revenue (ARR) growth rate of ~85% during the same period. Nerdio plans to utilize the additional capital to scale its technical and customer-facing teams in anticipation of rising customer adoption. The funding round demonstrates growth capital investors’ appetite for AI-supported, cloud-based services providers with robust ARR growth.
• Together AI Secures $305 Million in Series B Financing (February 2025) – Together AI secured $305 million in Series B financing for a post-money valuation of $3.3 billion (February 2025). Returning investor Prosperity7 Ventures and new investor General Catalyst co-led the round. Together AI offers cloud-based services, building open-source AI models for application development and deployment. The company has served more than 450,000 clients to date including AI-native businesses and large enterprises, according to a press release.⁶ The funding round coincides with Together AI’s plans for a large deployment of NVIDIA (Nasdaq:NVDA) Blackwell Graphics Processing Units (GPUs) to accelerate their AI workloads. “AI is transforming every industry, creating unprecedented efficiencies and enabling entirely new classes of products. We have built a cloud company for this AI-first world—combining state-of-the-art open source models and high performance infrastructure, with frontier research in AI efficiency and scalability,” said Together AI CEO, Vipul Ved Prakash, in the press release.

While developers have been at the epicenter of AI since its onset, acquirers’ and growth investors’ fervent appetite for the technology has validated AI’s place in the Capital markets. The role of AI in the AppDev & Deployment sector will likely not subside, especially as participants receive financial backing to further its progress. Sector transaction activity is anticipated to remain strong throughout the remainder of 2025, likely driven by M&A demand in the Services segment.

To discuss the widespread impacts of AI in the AppDev & Deployment Services segment, provide an update on your business, or learn about Capstone’s wide range of advisory services and AppDev market knowledge, please contact us.

Max Morrissey, Vice President, was the lead Market Intelligence contributor to this article.

Julianna Zelnhefer, Summer Intern, also served as a Market Intelligence contributor to this article. 

Endnotes

1. GitHub, “Survey Reveals AI’s Impact on the Developer Experience,” https://github.blog/news-insights/research/survey-reveals-ais-impact-on-the-developer-experience/, accessed June 23, 2025.

2. Cisco Systems, “Fiscal Q3 2025 Earnings Release,” https://s2.q4cdn.com/951347115/files/doc_earnings/2025/q3/earnings-result/Q3FY25-Press-Release.pdf, accessed June 24, 2025.

3. Improving Corporate Services, “Improving Amplifies its Chicago Presence with Acquisition of DragonSpears,” https://www.improving.com/thoughts/newsroom/dragonspears-acquisition/, accessed June 25, 2025.

4. Coforge, “Coforge Snaps up Rythmos…,” https://pressinsider.com/business/coforge-snaps-up-rythmos-tmlabs-in-62-mn-deal/, accessed June 26, 2025.

5. Nerdio, “Nerdio Secures $500 Million in Series C Investment from General Atlantic at $1 Billion+ Valuation,” https://getnerdio.com/press/nerdio-secures-series-c-investment-from-general-atlantic/, accessed June 26, 2025.

6. PR Newswire, “Together AI Raises $305M Series B to Scale AI Acceleration Cloud for Open Source and Enterprise AI,” https://www.prnewswire.com/news-releases/together-ai-raises-305m-series-b-to-scale-ai-acceleration-cloud-for-open-source-and-enterprise-ai-302380967.html, accessed June 27, 2025.