Bosa/Wu: Private equity is about to eat its own software portfolio

Editor’s note: The following article is a commentary on some of the top trends in technology and its broader impact.

The technology to disrupt enterprise software already exists. What’s been missing is the forcing function.

A potential tie-up between artificial intelligence and private equity could be exactly that.

The Information reported Wednesday that Anthropic is in talks with firms, including Blackstone, to form a joint venture, using a Palantir-style model to sell consulting services that would integrate Claude into their portfolio companies.

The deal makes sense for Anthropic, which just lost its Pentagon distribution channel. But private equity firms risk cannibalizing their own businesses and accelerating the software-as-a-service, or SaaS, shakeout that’s already underway.

For a firm like Blackstone, the math is more forgiving. Its portfolio spans manufacturing, healthcare, real estate, financial services, and infrastructure.

If Claude can cut costs across hundreds of companies in those industries, Blackstone has zero reason to hesitate. But many of the licenses those companies cancel may belong to software companies owned by a different set of PE firms, ones whose entire business depends on recurring software revenue holding up.

Thoma Bravo and Vista Equity Partners both call themselves one of the largest software-focused asset managers. Their revenue is now in the crosshairs. Claude Code can approximate what many horizontal SaaS tools do: Project management, basic customer relationship management, analytics dashboards and even portions of human resources and finance workflows.

When a Blackstone-owned manufacturer, for example, uses Claude to build a custom internal tool instead of renewing its Smartsheet license, Blackstone saves money while the software company, which Blackstone also happens to own, loses a customer.

But they’ll make that trade every time because PE optimizes for the fund as a whole, not a single at-risk software company.

Private equity might be the accelerant the “SaaSpocalypse” has been waiting for.

PE firms have board control, internal rate of return targets and a ticking clock. If a joint venture with a top AI lab gives the biggest firms a turnkey way to cut software spending across their portfolios, they’ll move.

Private equity firms drove the last major wave of enterprise technology adoption when they pushed cloud software into their portfolio companies a decade ago. That migration replaced on-premises systems with SaaS, expanding the total software market.

This time, the dynamic is inverting.

Private equity is essentially pushing AI as a service that eliminates the need for certain categories of software entirely. A replacement cycle that might have taken five years through normal enterprise adoption could compress to 18 months inside a PE portfolio, since the firms have the authority to enact change and the incentive to move fast.

PE firms should be able to see this far into the future, especially if we can.

Thoma Bravo’s Orlando Bravo has publicly argued that AI is a tailwind for enterprise software, making existing products more valuable by adding intelligent features. He told CNBC that his firm has roughly the same number of developers across its portfolio as a year ago that are actually producing more.

But Thoma Bravo looks behind the curve if it doesn’t push AI into its own portfolio companies and start implementing AI reductions. This week, Atlassian cut about 1,600 jobs, a tenth of its workforce, to fund AI investment. The stock rose.

A few weeks earlier, Block shares jumped 17% after announcing 4,000 AI-related cuts. Wall Street has already made clear which side it’s on. It will pay more for companies that shrink in the name of AI than for companies that defend the old model.

It’s an uncomfortable paradox: Thoma Bravo needs to deploy AI across its software companies to stay competitive and keep margins expanding. But the more AI gets deployed across the broader economy, the less enterprises need the horizontal software products Thoma Bravo sells.

Push AI and you accelerate your own disruption. Don’t push it and diversified firms like Blackrock will deploy it from the other side, potentially cutting your software out of their portfolio companies while you stand still.

The horizontal SaaS companies most at risk are the ones whose customers sit inside the diversified PE portfolios that now have a vehicle, like a potential JV with Anthropic, and the incentive to replace them.

Private equity built the SaaS installed base. It may also be the one that rips it out.