It’s a question I get asked all the time: How much is a managed service provider (MSP) business worth, and what metrics should MSPs use to set their company valuations?

I still don’t have an exact answer for readers, but here are some clues based on anecdotal info I’ve gathered plus Hewlett-Packard’s buyout of Electronic Data Systems (EDS).

Of course, most MSPs are tiny compared to EDS. But EDS is, essentially, a massive MSP that generates recurring revenue and also has feet on the street for customers.

HP plans to buy EDS for about $13.9 billion.  Now, let’s compare that price tag to EDS’s 2007 financial results. For fiscal 2007:

So, quick math shows that HP is paying 16.8 times earnings and 0.62 times revenue to acquire EDS. In stark contrast, most MSP sources tell me the buyout ratios are closer to 1 times revenue for a VAR and 1.5 times revenue for MSPs. I haven’t heard any MSP pricing multiples based on net income or operating income –but I’d welcome feedback from readers who are in the know.

Although MSPs have been buying up one another lately, it’s difficult to track valuations since so many of the deals involve privately held companies, as noted by our MSPmentor M&A Tracker.