<ul>
<li>AI fears cause PE firms to reassess data company acquisitions</li>
<li>FactSet, Morningstar, Gartner shares drop amid AI disruption concerns</li>
<li>PE firms cautious due to AI’s impact on business models and valuations</li>
</ul>
By Milana Vinn, Amy-Jo Crowley and Echo Wang
NEW YORK, March 5 (Reuters) - Financial data provider FactSet (FDS.N) caught the eye of Thoma Bravo and Hellman &amp; Friedman in recent months, with both private equity firms running the numbers on a potential acquisition after AI disruption fears helped drive a 39% drop in its shares over the last six months, three people familiar with the matter say.
The shares of competitor Morningstar (MORN.O) and data research firm Gartner (IT.N) have similarly fallen by 27.6% and 29.5% since early September, also raising investor interest in a potential sale in recent months, about a dozen bankers and investors said. But the sharp pullback in shares that make all three attractive takeover targets is also causing the private equity firms to reassess any potential deals, the people said, asking not to be named because the internal deliberations are private. The selloff, which deepened after Anthropic released its latest upgrade to its Claude Cowork AI tool last month, is indiscriminately hitting big companies like Microsoft as well as accounting firms, law firms and data providers – regardless of their exposure to AI disruption. Investors worry that AI could replicate much of the advice and information they package and sell. Bankers say they can’t accurately value a company if executives can’t predict whether their business model will evolve with or get overtaken by AI.
FactSet, Thoma Bravo, and H&amp;F declined to comment while Gartner didn’t respond to requests for comment. Morningstar also declined to comment, but CEO Kunal Kapoor told shareholders in a recent letter that he believes the company is “well placed to benefit from the growth of AI.”
WHERE IS THE MARKET GOING? “Public market investors are trying to figure out where the world goes,” said Jordan Jacobs, co-founder of venture capital firm Radical Ventures. “AI is such a new technology, and the improvements in new application areas are so dramatic, and the new opportunities are happening so quickly, that it’s very hard to predict things years in advance.”
Software and data companies like FactSet, which provide financial data to institutional investors and companies, are now trading at a sharp “AI discount” where they once traded at premiums. Their predictable subscription-based revenues and strong profit margins attracted investors and kept their valuations high relative to other blue-chip stocks.
FactSet’s so-called enterprise-value-to-EBITDA ratio, a key measure of its worth, is now hovering around 12, down from 21 last August and 30 in 2022, according to data compiled by LSEG. The ratio measures its market value to its earnings before interest, taxes, depreciation and amortization. Morningstar and Gartner are similarly trading at ratios of 12.6 and 14.8, down from about 20 and 23 a year ago.
FactSet’s revenue and so-called annual subscription value, which indicates potential revenue from subscriptions for the next year, rose 6.9% and 5.9% year-over-year in its latest quarter ending November 30. But investors say much of that growth has come from price increases in existing subscriptions rather than new customers, providing steady cash flow but limited upside for a leveraged buyout.
CASH VS. GROWTH Such a mature, cash-generating profile could work for some PE firms that value long-term cash generation over growth, one of the people said. But even that strategy depends on confidence that AI will not erode FactSet’s pricing power and that no one will pay a premium for that kind of investment. The company is currently worth just over $8.4 billion, down from $17.5 billion a year ago.
“Even if you grow 25%, the software business, you won’t get the same valuation you get for a pure disruptive AI, which has a $600 billion market opportunity ahead of it,” said Shlomo Dovrat, co-founder of venture capital firm Viola Ventures, and a board member of Facetune creator Lightricks.
Established subscription businesses — even those with resilient earnings — are being scrutinized through the lens of AI substitution risk, compressing valuations and slowing buyout momentum.
For private equity, the question is no longer simply whether software is cheap relative to history. It is whether its economics remain defensible in an AI-saturated world. Bankers and investors say software that’s deeply embedded in business processes is likely to retain value, while task-focused tools may be eroded. FactSet is trying to evolve. Its shares jumped 6% when Anthropic named it as a partner to develop new tech tools on February 24, giving hope to the theory that AI developers will work with, rather than supplant — established enterprise software firms. “As the software market bifurcates, some models will be existentially threatened but, more so, there will be great opportunities,” said Alex Baker, a partner at PwC and lead of its technology, media and telecom practice. “The businesses in truly defensible positions that demonstrate revenue stability will leverage AI as an accelerant and meaningfully outperform.”

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AI fears are causing private equity firms to reassess potential acquisitions of data companies like FactSet, Morningstar, and Gartner, whose shares have dropped significantly due to concerns over AI's impact on business models. The decline in valuations has made these companies attractive targets, but uncertainty about AI's effects is leading to caution among investors. FactSet's enterprise-value-to-EBITDA ratio has fallen sharply, reflecting a broader trend of software companies facing scrutiny in an AI-driven market. The evolving landscape presents both risks and opportunities for established firms.

- Financial data provider FactSet has seen a significant stock price decline of 39% amid fears of AI disruption, prompting private equity firms like Thoma Bravo and Hellman & Friedman to reassess potential acquisitions.  
- Competitors Morningstar and Gartner have also experienced stock drops of 27.6% and 29.5%, raising investor concern and interest in possible sales.  
- Investors worry about the impact of AI on business valuations and models, leading to cautiousness in private equity investments in the technology sector.

Reuters

Factset Research

Proshares Big Data Refiners ETF

ISHRS S&P Glb It

Franklin Exponential Data ETF

SPDR S&P Software

Morningstar

iShares Expanded Tech Software Sector ETF

Gartner

Global X Cloud Computing ETF

ANALYSIS-AI fears temper interest as private equity firms weigh data company deals