MSP Valuations: The Update
As mergers and acquisitions (M&A) continues across the managed services market, I’ve received some valuation updates from private equity sources as well as MSP executives involved in recent deals. So, what’s your managed services business really worth?
The general valuation range for MSP is roughly 3 times to 5 times EBITDA (earnings before interest, taxes, depreciation and amortization), with some highly specialized MSPs fetching as much as 7 times EBITDA, according to one private equity expert who has evaluated a range of deals in North America. Small companies, slow-growth MSPs with reliable recurring revenues are at the 3X EBITDA level; high-growth MSPs with at least 50 percent of revenues recurring can fetch the 5X (and sometimes higher) premium, the private equity expert indicated.
Admittedly, valuations can vary dramatically based on a company’s region, management, target customer base, and other variables. And some aspiring MSPs — let’s call them break-fix resellers who do remote management — aren’t fetching any premiums, according to multiple MSP executive sources. Many of the recent reseller buyouts — positioned as MSP acquisitions — involve zero dollars up-front and multi-year earnouts based on the acquired company’s long-term EBITDA and growth rates.
A disclaimer: Treat the information above as “informed speculation” rather than concrete guidance. Opinions about MSP valuations continue to vary drastically — especially among potential buyers and sellers.