How to Sell an IT MSP Company
How to Sell an IT MSP Company
Let us take a guess—are multiple buyers reaching out about acquiring your MSP business?
Due to increasing consolidation in the IT services industry and strong interest from Private Equity (PE) firms, MSP businesses have become highly sought-after acquisition targets.
As an MSP owner, selling your company is a significant decision that requires careful consideration. Whether you're planning for retirement, exploring new ventures, or capitalizing on favorable market conditions, a successful exit requires strategic preparation and thorough planning.
This guide walks you through the process of selling your MSP business for maximum value.
Want to learn more about IT services industry? Read our full industry report HERE.
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Why MSPs Are Valuable Businesses
MSP companies possess specific characteristics that make them attractive to buyers:
Recurring Revenue Model: Monthly recurring revenue (MRR) from service contracts and managed services
High Customer Retention: Long-term client relationships with sticky services
Scalable Operations: Remote monitoring and management capabilities
Strategic Client Base: Established relationships with growing businesses
Increasing Demand: Growing need for managed IT services across industries
Well-established MSPs often command strong valuations, particularly those with predictable revenue streams and efficient operations. However, positioning your company effectively is crucial for maximizing value.
Step 1: Understand Your Company's Value
MSPs are commonly valued based on a multiple of EBITDA, especially when there's a high proportion of recurring revenue from managed services.
Definition: EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is your company’s core profitability—before financial and tax-related adjustments. It’s the go-to metric buyers use to assess your MSP’s earning power.
According to Aventis Advisors, valuation multiples vary based on company size and business model:
Valuation by EBITDA Range
Sub-$1M EBITDA MSPs: typically trade at 4.0–6.0x EBITDA
$1M–$3M EBITDA MSPs: typically trade at 6.5–8.5x EBITDA
$3M–$5M EBITDA MSPs: often see 8.5–10.0x EBITDA
$5M+ EBITDA MSPs: can reach 10.0–12.0x or higher, depending on quality
Impact of Business Model on Multiples
Pure-Play MSPs (90%+ recurring revenue): Command the highest multiples
Hybrid MSPs/VARs: Mid-range multiples due to lower recurring revenue mix
Project-Based or Break/Fix MSPs: Lowest multiples due to revenue volatility
Other Factors That Boost Valuation
Industry Focus: Serving niche verticals like healthcare or finance increases perceived value
Geographic Reach: Multi-regional or national footprint expands buyer pool
Cybersecurity Offering: Strong compliance and security capabilities attract premium buyers
In general, if your MSP has $500K+ EBITDA, stable recurring revenue, and a sticky client base, there’s strong buyer appetite. Break the $1M EBITDA mark with scalable operations, and you’ll start to attract serious competition from strategic and financial buyers alike.
Step 2: Prepare Your Company for Sale
Before going to market, focus on these key areas:
Clean, accurate financial statements with clear monthly recurring revenue (MRR) tracking
Documented client contracts and service level agreements (SLAs)
Strong customer retention metrics and success stories
Standardized service delivery processes
Key employee retention plans
Technology stack and proprietary tools documentation
Pay special attention to your recurring revenue streams and contract terms. Buyers will place a premium on predictable, long-term revenue.
Step 3: Minimize Owner Dependence
This is crucial for MSPs, where owners often maintain key client relationships. Start transitioning:
Client relationships to account managers
Technical oversight to your service delivery team
Sales pipeline to your business development team
Strategic planning to your leadership team
The more your company can operate without your daily involvement, the more valuable it becomes to potential buyers.
Step 4: Partner with an M&A Advisor
The right advisor can help you:
Position your MSP's unique value proposition
Identify strategic buyers in the IT services space
Navigate complex deal structures
Manage the due diligence process
Maximize your exit value
Look for an advisor with experience in technology services M&A who understands current market dynamics and buyer expectations.
Step 5: Run a Strategic Sale Process
A well-structured process should:
Target both strategic buyers (larger MSPs, IT service providers) and financial buyers
Present your company's growth potential and market position
Highlight your recurring revenue model and client relationships
Address potential buyer concerns proactively
Many buyers will want to structure deals with large earn-outs - work with your M&A advisor to structure the best deal to minimize risk.
Your goal is finding a buyer who values your company's market position and can help take it to the next level.
Step 6: Manage the Transition
MSP transitions require careful planning:
Communicate strategically with clients and team members
Maintain service quality during due diligence
Plan for technology and system transfers
A smooth transition helps preserve the value you've built and ensures continued success under new ownership.
Common Pitfalls When Selling an MSP
Avoid these common mistakes:
Poor documentation: Lack of documented processes, procedures, and client information can significantly reduce buyer interest.
Weak cybersecurity measures: Inadequate security protocols or unresolved vulnerabilities can derail deals during technical due diligence.
Over-reliance on break/fix work: Too much project-based or break/fix revenue instead of managed services can lower valuations.
Outdated technology stack: Legacy systems or unsupported tools can raise concerns about future maintenance and scalability.
Valuation Rules of Thumb (The “Gold Standards”) for MSP Companies
When evaluating MSP companies for acquisition, buyers look for specific performance metrics that indicate a well-run operation. Understanding these benchmarks can help you position your MSP for maximum value.
The table below outlines key metrics that strategic and financial buyers typically assess during valuation. Keep in mind that while these are industry standards, exceptional companies may command premium valuations above these ranges.
FAQs About Selling an MSP
How long does it take to sell an MSP?
The typical process takes 6-12 months from preparation through closing, with larger MSPs often requiring more extensive due diligence.
What are common MSP deal structures?
Most MSP deals include a combination of upfront cash and performance-based earn-outs tied to client retention and revenue targets. Some buyers may offer stock in their company for strategic acquisitions.
How can I increase my MSP's valuation?
Focus on increasing monthly recurring revenue, maintaining high client retention rates, building a strong cybersecurity offering, and developing a management team that can operate without owner involvement. Start with downloading our free million dollar exit guide HERE.
Should I tell my MSP employees about the sale?
Employee communication requires careful planning, especially for MSPs where technical staff relationships are crucial to client retention. Work with your M&A advisor to develop a communication strategy that maintains team stability throughout the process.
Final Thoughts: Maximizing Your MSP's Exit Value
Selling your MSP is a significant milestone that can lead to a substantial liquidity event. With proper preparation and guidance, you can maximize the value of your years of hard work.
At Breakwater M&A, we specialize in helping MSP owners navigate the exit process. If you're considering selling your company—whether now or in the future—we're here to help you achieve the best possible outcome.
Schedule a confidential call with our team HERE.
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