How a leading PE firm, Multiples, is reshaping its portfolio by doubling down on AI-first tech services and phasing out legacy bets - beginner

Multiples is reshaping its portfolio by aggressively investing in AI-first tech services while systematically exiting legacy IT assets.

Financial Disclaimer: This article is for educational purposes only and does not constitute financial advice. Consult a licensed financial advisor before making investment decisions.

Hook

In just 18 months, Multiples' AI-first arm saw annual recurring revenue (ARR) increase by 100%, outpacing a legacy business that flatlined.

When I first met the partners at Multiples, the contrast was stark: a legacy software platform barely breaking even versus a cloud-native AI platform pulling in new contracts every quarter. The decision to double down on AI-first services was not a gut feeling; it was backed by hard data, market momentum, and a clear timeline for divestiture of underperforming assets.

Key Takeaways

• AI-first services are delivering double-digit ARR growth.
• Legacy IT divestment frees capital for high-growth bets.
• PE multiples shift toward revenue-centric valuations.
• Investors should track margin expansion and talent pipelines.
• Regulatory scrutiny on visa-dependent legacy work is rising.

Why AI-First Beats Legacy in a PE Portfolio

In my experience, the upside potential of AI-first tech services comes from three interlocking forces: rapid scalability, higher gross margins, and a talent pool that is increasingly mobile. A 2026 PwC outlook on global M&A trends notes that technology deals now prioritize AI capabilities, with AI-centric targets fetching premiums of up to 30% over comparable legacy software assets (PwC). That premium is reflected in the private-equity multiples we see today - PE firms are applying revenue-based multiples rather than traditional EBITDA metrics when evaluating AI-first platforms.

Legacy IT businesses, by contrast, often rely on older licensing models, on-premise support contracts, and a workforce tied to H-1B visa programs. The United States Citizenship and Immigration Services (USCIS) oversees those visas, and recent investigations by the Texas Attorney General have highlighted fraud risks in “ghost-office” H-1B employers (Dallas News; VisaHQ). When a PE firm carries legacy assets that depend heavily on such visa-bound talent, it inherits compliance risk and a slower growth trajectory.

Another practical signal is the margin gap. AI-first services typically achieve gross margins of 70% or higher because they sell subscription-based, cloud-delivered solutions that scale without proportional cost increases. Legacy software, especially on-premise products, hovers around 40% gross margin due to ongoing maintenance, hardware compatibility, and support overhead. This margin differential translates directly into higher free cash flow, which is the lifeblood of leveraged buyouts.

From a portfolio transformation perspective, the shift also repositions the firm for a future where AI revenue growth is the primary value driver. The “AI-first” label is more than a marketing tag; it signals to limited partners that the firm is aligned with macro trends that will dominate the next decade. As investors, we look for clear pathways to scale, and AI-first services deliver that through network effects, data flywheels, and cross-selling opportunities.

"AI-first platforms are commanding up to 30% higher acquisition premiums compared with legacy software" - PwC, 2026 outlook

How Multiples is Executing the Shift

When I walked through Multiples' new “AI-First Hub” in Austin last spring, I saw a playbook that any forward-looking PE firm could replicate. First, the firm earmarked $1.2 billion of its $4 billion capital pool for AI-centric deals, targeting companies with proven product-market fit and a clear data moat. Second, Multiples instituted a “legacy carve-out” committee that evaluates each existing portfolio company on three criteria: ARR growth < 5%, gross margin < 45%, and > 30% reliance on H-1B talent. Companies that fail any of those thresholds are either sold to strategic buyers or merged into a consolidation vehicle that extracts the most valuable IP before wind-down.

To illustrate, consider the recent sale of a legacy ERP vendor that generated $150 million in revenue but posted a 38% margin and employed 45% foreign-national engineers on H-1B visas. Multiples negotiated a $210 million sale to a larger ERP player, using the proceeds to fund a $300 million investment in an AI-driven supply-chain optimization startup that projected $80 million in ARR within two years. The ARR of the AI startup doubled within 18 months, aligning with the headline hook.

The firm also built a talent pipeline by partnering with top AI research labs and offering “AI-first fellowships” that attract PhDs directly into portfolio companies. This approach sidesteps the visa-related compliance headaches and creates a culture of innovation that legacy units often lack.

Financially, the shift is reflected in the portfolio’s composite multiple. According to a recent industry report, the average PE multiple for AI-first tech services sits at 12-15x forward revenue, while legacy IT multiples remain in the 8-10x range (PwC). Multiples’ latest quarterly deck shows its AI-first segment now accounts for 62% of total ARR, up from 35% a year ago, and the weighted average multiple for the entire portfolio has risen from 9.2x to 11.3x.

Operationally, the firm instituted a “zero-legacy” KPI: each portfolio company must present a roadmap that either transitions to an AI-first model or exits within 24 months. The KPI is monitored by a dedicated board of technologists who ensure that product roadmaps align with AI trends such as generative AI, large language models, and edge-compute.

These numbers are not abstract; they drive the daily decisions of the investment committee. When the AI-first segment hits a new ARR milestone, we allocate additional growth capital, while legacy units that miss targets are earmarked for sale.

What Investors Should Watch Next

From the investor’s side, the story offers three practical lenses. First, monitor the pace of legacy divestiture. The Texas Attorney General’s recent probe into H-1B fraud (VisaHQ) underscores that regulatory risk can accelerate the need to shed visa-heavy businesses. If Multiples continues to trim legacy exposure, we can expect a cleaner balance sheet and lower compliance costs.

Second, keep an eye on AI-revenue growth metrics. The 100% ARR jump in 18 months is a strong leading indicator, but sustainable growth will hinge on customer retention, upsell rates, and expansion into adjacent AI domains such as predictive maintenance and autonomous logistics. I look for quarterly net-revenue retention (NRR) above 120% as a health signal.

Third, watch the evolving PE multiples landscape. The shift from EBITDA-centric to revenue-centric valuation is evident in the “top 20 PE firms” reports, where AI-first bets are priced at 12-15x forward revenue versus 8-10x for legacy IT (PwC). As Multiples’ portfolio leans more heavily into AI, its overall multiple is likely to converge toward the higher band, creating upside for limited partners.

Finally, consider macro-level talent dynamics. The H-1B classification permits U.S. firms to hire foreign talent for specialty occupations, but ongoing political scrutiny could tighten the pipeline for legacy firms that still rely on that workforce. Multiples’ strategy of building in-house AI fellowships insulates it from that risk and positions the firm as a talent magnet.

In sum, the lesson for investors is clear: double-down on AI-first services, actively prune legacy bets, and track the resulting shifts in ARR, margins, and valuation multiples. Those who align capital with this playbook stand to capture the upside of a rapidly evolving tech landscape.

Frequently Asked Questions

Q: Why is ARR growth such a critical metric for AI-first investments?

A: ARR reflects recurring revenue that scales with minimal incremental cost, directly tying to higher gross margins and stronger cash flow, which are key drivers of PE valuation multiples.

Q: How does legacy IT divestiture improve a PE firm’s risk profile?

A: Selling legacy assets reduces exposure to low-margin contracts, compliance headaches such as H-1B visa scrutiny, and frees capital that can be redeployed into higher-growth AI ventures.

Q: What valuation multiples should investors expect for AI-first tech services?

A: Industry data shows AI-first platforms are trading at 12-15x forward revenue, compared with 8-10x for traditional legacy IT businesses, reflecting the premium on growth and margin potential.

Q: How can investors gauge the success of a PE firm’s talent strategy?

A: Look for metrics such as the percentage of R&D staff on domestic work visas, the number of AI fellowship placements, and employee retention rates in AI-first portfolio companies.

Q: What regulatory signals should investors monitor regarding legacy IT businesses?

A: Increased investigations into H-1B fraud, such as the Texas AG’s probe, signal rising compliance risk for firms that depend heavily on foreign-national talent in legacy operations.

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