Buyout investors are taking a hands-on approach to evaluate software companies, recreating their products internally to test market competitiveness. This shift represents a new due diligence strategy where private equity firms aren't just investing capital but actively stress-testing business models.

The move comes as software valuations remain elevated and investors seek deeper insights before committing funds. Rather than relying solely on financial metrics, firms are building competing versions to understand true competitive positioning.

This approach signals growing skepticism about traditional valuation methods in the tech sector. Private equity shops are essentially asking whether they could build a better product themselves, potentially reshaping how buyout deals are structured and priced in the software space.

The strategy reflects broader market uncertainty around software multiples and growth sustainability. It suggests investors are becoming more operationally involved earlier in the deal process, which could lead to more realistic pricing and fewer overvalued acquisitions.