A deal that could set a historical record.
Recently, reports have emerged that well-known private equity firm Silver Lake is in acquisition negotiations with software company Workday. The talks have lasted for several months, but there is still uncertainty over whether the final deal will be reached. Even so, Workday’s share price posted its largest single-day gain in a decade that day, and its market value swelled to 51.1 billion U.S. dollars.
This has also given enterprise service software companies new expectations. For example, HubSpot rose 14.5%, DocuSign rose 10.3%, and Salesforce rose 4.2%.
The new quarterly financial report released by Workday also delivered strong figures: subscription revenue increased 13.9% year on year, non-GAAP earnings per share reached 2.75 U.S. dollars, exceeding market expectations. The company also announced a new 4 billion U.S. dollar share repurchase plan. However, after the release of the better-than-expected financial report, Workday’s share price closed lower, once falling 5% in after-hours trading.
The secondary market is currently pricing software in a quantum superposition state. If no one observes it, software is regarded as a “doomsday asset” that is subverted by the AI wave and whose business model is on the verge of failure.
Once an observer appears, for example after the acquisition rumor spreads, it becomes a core cash cow with stable and abundant cash flow that private equity institutions are willing to compete for at a 30% premium.
A Deal That Could Make History
Workday is a global leader in human capital management (HCM) and financial management software. Silver Lake has been negotiating on this potential transaction for several months, and the talks are still ongoing but no conclusion has been reached, with “no guarantee that an agreement will be reached”. It was also noted that Silver Lake may bring in other investors to jointly contribute capital.
This piece of news has remained at the rumor stage, as neither party has responded to requests for comment, and no regulatory documents have been filed yet. However, the market priced it with the most fierce single-day performance since its listing in 2012. Although the share price fell slightly by 3.8% the next day, its market value stabilized at about 49-50 billion U.S. dollars.
Later, as the news fermented in the following days, the outline of this potential transaction became roughly clear. According to the usual practice of private equity acquisitions, if the transaction is closed at a premium of 30% to 40%, the transaction scale will reach 55 to 60 billion U.S. dollars (about 369.6 to 403 billion RMB), a price that will make Workday one of the largest privatization transactions in the history of the software industry.
Looking at the buyer, Silver Lake is a private equity institution managing 1140 billion U.S. dollars of assets (about 7700 billion RMB), and it is also one of the most senior players in the technology privatization track.
In 2013, Silver Lake was deeply involved in Dell’s privatization and invested in VMware. In 2023, it joined hands with CPP Investments to privatize Qualtrics for about 12.5 billion U.S. dollars. In 2024, it teamed up with GIC to acquire Zuora for 1.7 billion U.S. dollars, and also led Software AG’s delisting transaction of about 2.6 billion U.S. dollars, and acquired French payroll SaaS company Silae.
As a hunter, Silver Lake is used to taking action when the market confuses the uncertainty during the transformation period with the demise of the business, because this confusion creates a discount.
In other words, Silver Lake will only step in to buy the dip when the market is in extreme panic and the valuation hits rock bottom, and it is only interested in technology companies.
While the Workday acquisition rumor was spreading, the approximately 55 billion U.S. dollar acquisition of Electronic Arts (EA) completed by Silver Lake in partnership with the Public Investment Fund of Saudi Arabia (PIF) and Affinity Partners had just closed, which is one of the largest leveraged buyouts in history. In addition, according to media reports, Silver Lake also participated in the consortium investment of about 15% equity of TikTok this year.
It is worth mentioning that Aneel Bhusri, co-founder and CEO of Workday, and Egon Durban, co-CEO of Silver Lake, are close personal friends, and this personal relationship adds a bit of credibility to the rumor.
More importantly, this is a deal with clear returns. Even if acquired at a 30% to 40% premium, the valuation is only 5 times PS and 16 times FCF, both lower than the historical average. Morgan Stanley pointed out that this indicates that software stocks may have been cheap enough that PE firms are willing to make a move again.
For Silver Lake, with an investment cycle of 5-7 years, buying an asset priced by a 6-month sentiment cycle can still bring considerable annualized returns upon exit after five years. During this period, Workday’s cash flow is sufficient to cover the leverage. If the AI restructuring under private status is successful, the exit multiple will only be higher.
A Veteran Giant Held Back by Narrative
Workday used to be a highly sought-after star project.
The company was founded in 2005 by Aneel Bhusri and David Duffield. Before founding Workday, they both worked at PeopleSoft together. However, PeopleSoft was subject to a hostile takeover by Oracle in 2004, after which the two founders re-established a human resources and financial management software company based on the cloud from day one almost from scratch. Therefore, Workday is in a sense the product of that past grievance.
Workday’s core business is human resources, payroll and financial systems. These systems accumulate years of data, permissions, connectors and business rules of a company, and migration often means months of pain for the entire organization. So far, it has served more than 11,500 customers, covering more than 65% of the Fortune 500 companies, including Netflix, Bank of America, and Johns Hopkins University.
Workday was listed on the U.S. stock market in 2012. In the past few quarters, its revenue has maintained a stable growth of around 13%, and the newly released financial report is even more impressive:
Revenue for fiscal year 2026 reached 9.55 billion U.S. dollars, up 13.1% year on year; subscription revenue was 8.83 billion U.S. dollars, up 14.5%; non-GAAP operating profit margin was 29%, and the guidance for this fiscal year was raised to 31%; free cash flow for fiscal year 2026 was 2.78 billion U.S. dollars, up 26.7%; revenue retention rate was about 97%; cash and marketable securities on the account amounted to 3.4 billion U.S. dollars.
However, in 2026, Workday became an abandoned stock. Calculated from its 2024 high point, Workday’s market value has shrunk by more than 40%. Since the beginning of the year, its decline has remained in double digits. Although the company’s fundamentals are not bad, the market narrative has collapsed first, and the public market is no longer willing to pay for it.
The rise of Agents has become a cloud hanging over the entire industry. Investors are worried that the subscription model that traditional software companies rely on for survival will be disintegrated by AI. In February this year, Wedbush star analyst Dan Ives even gave this sentiment a widely spread name “SaaSpocalypse”. According to his statistics, about 300 billion U.S. dollars of market value evaporated in the software industry within 48 hours in mid-February.
To cope with this distrust, 60-year-old Bhusri retook the position of CEO in February this year and fully promoted the AI transformation. Upon his return, he said, “AI is a bigger transformation than SaaS.” Since then, they have repositioned themselves as an enterprise AI platform that manages “people, money and agents”.
Bhusri said a widely circulated remark in the industry this year: “No amount of vibe coding can produce a set of HR or ERP systems.” In other words, AI can write code, but cannot write trust. Enterprises will not hand over the payroll records of all employees and the financial reporting process of the entire company to an application generated last week.
A detail in the new financial report further confirms this. It was revealed that AI-related products now drive more than 25% of the value of Workday’s newly signed contracts, and more than 5,500 customers are using at least one built-in AI agent.
Between Capital Market and Reality
Some people say that the Workday rumor has injected a shot in the arm into the software market, and this is true. You can see that the S&P Software & Services Index rebounded by about 25% in the third quarter, and the re-entry of PE is also a signal of real money. But if you interpret it as the end of the software industry crisis, you misread the meaning of this incident.
Because when you step into reality, your feelings will be completely opposite. This reminds me of two cases I heard recently: one is from a programmer of an older software company, who confessed that he was replaced by an AI coding product he developed himself. After working for more than 20 years, he still failed to avoid the fate of receiving the layoff package. The other is from a young friend who has worked in the software and hardware industry for many years. He has worse luck, because he is young and because the industry he has been deeply involved in is the software industry that is about to disappear.
“I can’t see the future of the software industry” has quickly become a common sentiment among practitioners.
The macro-level data is even more shocking. Since the beginning of 2026, global technology companies have announced more than 163,000 layoffs, of which about 91,000 are explicitly attributed to AI by the companies. Ironically, after Salesforce laid off 4,000 people, AI almost completely failed to handle subtle problems and respond to long-term customers, and four months later it had to rehire those employees.
Thus a peculiar phenomenon has emerged: at the corporate level, revenue is still rising, cash flow is still rising, and customers hardly leave; at the employment level, the wave of layoffs is the largest in the past decade; at the capital market level, share prices fell in the first half of the year and rebounded collectively in the second half due to an acquisition rumor.
A 2026 survey by Harvard Business Review quantified this misalignment: 89% of surveyed enterprises have laid off employees or slowed down recruitment due to the expected impact of AI, but only 2% of enterprises explicitly stated that layoffs occurred because AI has really taken over the work originally done by humans.
In other words, the vast majority of layoffs occurred before AI has actually taken over the work. This means that to a large extent, layoffs are not a result, but a gesture.
Putting the above information together, it is easy to raise a question: why there is a serious deviation between the capital market and the physical reality in an industry with decent fundamentals?
First, it is a cliché reason: the public market is increasingly like an exchange of emotions and narratives, while the private market is becoming an exchange of cash flow and patience. The secondary market is essentially voting for future stories. Obviously, software stocks in 2026 cannot use any financial report to prove that the subscription model cannot be completely eliminated in the future.
But PE’s algorithm is completely different. What Silver Lake sees is that this asset will generate about 3 billion U.S. dollars in cash flow every year in the next seven years, with a 97% retention rate, the leverage can be covered, and AI transformation is a free option. Even if the impact of AI on the software industry is real, it is most likely a transformation that is slowly released on an annual basis.
The reason why the Workday rumor made the entire sector rebound is that it publicly verified for the first time that there are indeed buyers in the market who are willing to bid from a five-year perspective, and their bid is 30% higher than the market price.
Second, layoffs have changed from a recession indicator to a kind of signal language. For example, Cisco’s share price rose 17% in after-hours trading after it announced layoffs; ServiceNow rose about 9% in a week after it announced 15% layoffs and that the value of AI contracts exceeded 1 billion U.S. dollars. One analyst summed it up that large-scale layoffs, as long as paired with an AI transformation story, will be regarded as a manifestation of clear priority.
Once the incentive mechanism is formed, behavior will be distorted. An uncomfortable conclusion is that a considerable part of the layoffs is made for the capital market to see. The money saved by laying off employees is invested in AI infrastructure, thus forming a self-reinforcing cycle: layoffs make way for AI, and the improvement of AI capabilities makes the next round of layoffs more justified.
The individual decisions of each company are rational, but when added up, they become a rush-to-the-exit industry contraction. As a result, layoff data can no longer reflect the real operating conditions. The capital market is cheering for this signal, while practitioners are bearing this reality. In their respective information worlds, the software industry is two completely different industries.
Finally, the software industry will most likely not die, but the process of being subverted by AI is irreversible. The result is that the market will re-establish the valuation logic for software companies. In this process, there will be continuous emergence of “observers” like Silver Lake, who will use capital to interpret the new value of these companies in the AI era.
This article is from WeChat Official Account “ChinaVenture”, Author: Zhang Xue, published with authorization from 36Kr.
