Application software leads private IT sector bankruptcy filings

Private US companies in the IT sector recorded 30 bankruptcy filings in 2025, with liabilities trending higher for a second consecutive year, at $2.46 billion, according to S&P Global Market Intelligence data.

Application software companies comprised 50% of the private IT filings, and one — Anthology Inc.'s bankruptcy filing in September 2025 — accounted for the bulk of the liabilities. Anthology is a software-as-a-service educational technology provider. It rebranded as Blackboard in March 2026 after announcing it had completed a recapitalization and emerged from Chapter 11.

In the first quarter of 2026, the private IT sector recorded two bankruptcy filings from application software companies: Archblock Inc., which offers blockchain solutions and services, and Gas Pos Inc., which provides point-of-sale systems and related software and hardware services.

By comparison, among publicly listed companies in the IT sector, two filed for bankruptcy in 2025, with total liabilities amounting to $100.7 million, the highest level since 2023. The two companies, semiconductor company Wolfspeed Inc. and communications equipment provider DZS Inc., filed for bankruptcy in June and March 2025, respectively.

This analysis covers public companies or private companies with public debt where either assets or liabilities at the time of the bankruptcy filing are greater than or equal to $2 million, or private companies with $10 million or more in assets or liabilities at the time of the bankruptcy filing. Involuntary bankruptcy filings are also included.

Bankruptcy pressure comes from both macro forces and industry-specific shifts in the IT sector, said Justin Eisenband, a senior managing director in FTI Consulting's telecom, media and technology practice.

The higher cost of capital is a key macro trigger as many deals that were done in the 2021–2022 time frame used floating-rate debt, so interest burdens rose as rates increased, making debt service harder.

"To the extent there were any kind of [payment-in-kind] interest structures or refinancing or growth that did not necessarily pan out as expected, there can be a lot of over-levered capital structures," Eisenband said.

Private software companies followed trends similar to public SaaS companies, which averaged 30%-35% revenue growth in early 2022, declining sharply to 10%-15% by late 2025, Eisenband said.

While average EBITDA margins improved to about 10% from near-zero levels, the growth deceleration has compressed enterprise value to annual recurring revenue to 5-6x from 10x.

Companies originally valued on aggressive expansion assumptions now face pressure to achieve profitability quickly.

"Profitability has improved, but the growth rate has slowed. [T]he valuations have come down based on slower revenue growth," Eisenband said.

As valuations decline, sponsor willingness to inject additional capital diminishes, leaving overleveraged companies increasingly vulnerable to restructuring, Eisenband said.

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Outlook

The IT sector likely faces persistent headwinds, including AI continuing to be a substantial pressure point for many software companies and technology companies overall, Eisenband said. AI investment demands remain critical as companies must build AI-native products and modernize technology stacks to compete, yet they face revenue compression from shifting pricing models.

Additionally, customer acquisition costs are rising while new customer growth slows, forcing firms to extract greater value from existing clients. However, this strategy faces resistance as customers consolidate platforms and reduce spending.

Restructuring activity is expected to continue, though formal bankruptcies may be avoided through distressed M&A transactions.

As valuations normalize and realistic pricing emerges, more companies may transact at lower valuations rather than pursue insolvency proceedings, Eisenband said.