‘If you have a CISO or vCIO, or you’re doing some sort of artificial intelligence data analytics as-a-service-type play, those types of organizations are getting a little bit better valuations depending upon how much of that revenue is concentrated in that area,’ says Don Monistere, president and CEO of platform MSP General Informatics.
As an industrywide move to consolidate smaller MSPs into larger companies with increased market and technology clout via mergers and acquisitions, the way those MSPs are valued is changing.
The last few years have seen an increased emphasis on a wide range of variables impacting how much a larger MSP, a platform MSP or a private equity company will pay to purchase a smaller MSP, according to several MSPs and an M&A advisor who also told CRN what companies looking to be acquired should not do to prepare.
There is almost an unlimited demand for acquiring companies that can help MSPs grow, said Abe Garver, managing director and MSP team leader at Focus Investment Banking, a Vienna, Va.-based midmarket investment bank.
[Related: MSP Valuations: Up-Front Conversations With Potential Buyers Key To Success]
Garver told CRN that there are about 75 really good domestic private-equity-backed platforms, each of which are looking to buy and are the kinds of company an MSP would typically like to sell to.
“Those 75 want to buy $2 million or $3 million in EBITDA [earnings before interest, taxes, depreciation, and amortization],” Garver said. “One of them we’re working with wants to buy $20 million of EBITDA before the end of the year in MSPs. Then there’s another I think 154 private equity groups that don’t yet have an MSP that want to buy a platform. … It’s definitely a seller’s market.”
When it comes to pricing a potential acquisition, valuations are changing, Garver said.
“In the past, valuations were more concentrated around EBITDA multiples without much regard for the quality of the revenue,” he said. “Now the quality is scrutinized, especially organic growth. Organic growth is No. 1, and No. 2 would be retention.”
Quality Revenue
Purchasers of MSPs look very carefully at organic growth rates because they know that buying another MSP for the revenue is not really growing, Garver said.
“You can get growth by investing in your own business development engine, hire a VP of sales, and grow it that way,” he said. “Growing organically with a new VP of sales, that’s repeatable, and that’s really valued by institutional investors or other investors. Buying something that’s dead, an MSP that’s not growing, yes, buying somebody your size makes it look like you doubled your revenue. But unless you have something with a really valuable business development engine to get organic growth, it’s not really growing.”
Organic growth is a key consideration when considering an acquisition, said Rashaad Bajwa, CEO of Integris, a Cranbury Township, N.J.-based MSP that has acquired several smaller MSPs.
“Having a reputation for high-quality customers, high quality-employees, good margins, good employees, good organic growth, low churn,” Bajwa told CRN. “Companies with these are going to command relative premiums, whereas anyone who has either flat growth or no organic growth, or has struggled from a reputational point of view, are not going to be as well priced.”
There was a point in time where double-digit growth was very standard for MSPs, but many are now struggling with that, Bajwa said.
“Those MSPs are now struggling to get the multiples they used to get, whereas high-quality assets are still getting premium multiples, just as high as they ever were,” he said.
The definition of “quality revenue” differs for some organizations, said Don Monistere, president and CEO of General Informatics, a Baton Rouge, La.-based platform MSP.
A platform MSP looking to acquire an MSP might be looking for a very specific vertical, a very specific demographic such as customer size or customer retention, or MSP organizations of a specific number of users, he said. Revenue from each of those could be considered quality revenue to the right buyers, he said.
“We don’t want to be a milewide and an inch deep,” he said. “We really want to be a mile deep and maybe five inches wide. We want very specific subject-matter expertise in certain verticals, and we want to make sure that we’re targeting the types of clients that our services were designed to serve. … A lot of what I call ‘professional buyers’ the PE firms that have these massive platforms or are trying to start a platform, are really getting particular about what that revenue looks like.”
Other Factors Behind MSP Valuation
Another important consideration is a company’s EBITDA, Garver said.
“$15 million of EBITDA going at a premium compared to somebody down at, let’s say, $1 million,” he said. “As you scale the amount of EBITDA, your operational maturity is increasing, and buyers are paying more for more EBITDA.”
Other factors, such as a management team or specific technical skill sets, may be important to some buyers and not to others. Garver said one MSP he works with already has a great management team and so is not looking at adding to that team, but it is considering purchasing a health-care company because that is a new vertical targeted for future growth.
“Each buyer has different objectives for M&A as they’re trying to fill holes and deficiencies in their operations,” he said.
Garver also said that MSPs looking for potential acquirers should think twice before making changes to their business specifically to attract a buyer.
He said he recently talked to the silent owner of an MSP whose CEO just hired a business developer and handed out a raise, moves that caused its EBITDA to drop, which in turn caused the owner to reconsider selling.
“There are people who think buyers are not going to pick up on that stuff,” he said. “I think you should always just operate the business like you’re not going to sell it. So I just told the owner, ‘It’s a great thing that you hired. What the market values is organic growth. It’s going to take six months, nine months, 12 months to grow.’ It’s like making modifications to your house or your car before you sell it. It’s dangerous if you don’t know what the buyer is really looking for.”
There is a lot more focused attention on strategic revenue, including security and AI, Monistere said.
“If you have a CISO or vCIO, or you’re doing some sort of artificial intelligence data analytics as-a-service-type play, those types of organizations are getting a little bit better valuations depending upon how much of that revenue is concentrated in that area,” Monistere told CRN.
However, Monistere said, MSPs should not slap a security or AI label on their business and expect to fool potential buyers.
“Sophisticated buyers can tell the difference,” he said. “If a selling company gave them a category of AI revenue, the buyers would definitely dig in to see how much of that revenue is resold platforms like Microsoft Copilot, how much of that is actually advisory services you’re providing on top of that platform, or is the platform your IP. If it’s your IP and it’s sellable and it’s valuable to the end market, then you know you’re going to get looked at as being a lot more valuable.”
Kevin Damghani, founder and CEO of ITPartners+, a Grand Rapids, Mich.-based MSP that has made four acquisitions so far in 2026, told CRN that operational maturity is important.
“While there are exceptions, owner-led sales MSPs have a relatively low operational maturity in terms of their business and processes,” Damghani said. “That tells us their processes are typically going to be weak. The management team likely doesn’t exist. There’s not a core management team, and so the business is very dependent on the owner itself. As businesses start to mature operationally, they have a sales team, a management team, better KPIs, better processes, and all of those things command a higher multiple.
Geography is not an important factor for a company like ITPartners+, which already has business across the U.S., Damghani said.
For the smaller $1 million to $5 million top-line revenue MSPs ITPartners+ typically acquires, technical expertise is also not a major factor.
“We’re already doing a lot of the same things they’re doing,” he said. “Maybe they have a service delivery engineer as a lead or the main point person, along with Level 1, Level 2, and Level 3 technicians who are great qualified individuals. But it’s not like we’re getting DevOps or similar roles in that size range. You will see that when you move upmarket to $20 million MSPs.”
However, Damghani said, vertical expertise commands a higher multiple if there is verifiable expertise.
“When I say ‘vertical expertise,’ I’m not talking about somebody who just says they do a lot of dental,” he said. “I’m talking about somebody that says we only do dental, and we say no to other potential customers. That commands a higher multiple because they’re experts in that field. They’re typically going to the trade shows of that field. It’s a lot easier to expand a vertical MSP, meaning add new customers, because you could just increase the marketing and sales dollars for that specific vertical and have a specific division within the acquired platform MSP. Again using dental as an example, we could have a dental division.”
Once the due diligence phase and the getting-to-know-you phase of an acquisition is done, it’s important to look at the acquired MSP’s budget and forecast, Damghani said.
“Are the owners leaving?” he said. “How are we going to add sales? How are we going to add account management? What does that transition look like? Let’s say a target acquisition hasn’t had a price increase in many years. What you don’t want to do is acquire that company and then do a price increase within that first six or 12 months because customers are going to associate the price increase with the sale, and that will give them a bad feeling. Sometimes the strategy is to work on a price increase that the seller does as part of the due diligence process, adding value to the overall transaction.”
Last Word
Garver said in today’s sellers’ market, MSP owners should not be in a hurry to sell their business.
“The danger for so many of them is that all the platform MSPs and some of the others without a platform are calling into every one of those company founder CEOs trying to buy them,” he said. “And if they’re not aware of the overall market dynamics, what they’re really worth, they can really do themselves a disservice. So my advice has always been to increase your value. Don’t sell to the first person that approaches you. That’s a definite no-no.”
