Hardly have we launched our sell-side service for MSPs (and other tech companies) when we started receiving a wave of inquiries from business owners who, in the past, tended to be more hesitant.
Over the last several years, MSP owners were contacted almost daily by private equity firms looking to schedule an introductory conversation about a potential sale.
During that time, we were part of that ecosystem as well, supporting several buy-side platforms with deal sourcing. As a result, we know the market and its participants extremely well. On top of that, our team at eightM includes former IT entrepreneurs who bring valuable, firsthand perspective.
The most common question right now is about current multiples: What EBITDA multiple is a buyer willing to pay to own the business?
That question isn’t easy to answer, because a credible valuation depends on many variables. That said, at the moment (and please pay attention to the publication date of this article, conditions can shift almost quarterly), MSPs are generally trading in the 6x to 8x EBITDA range.
Of course, there are also private equity firms offering 5.x multiples, but the odds of getting a deal done at that level tend to be lower. For that price to win, the seller usually needs to see a very compelling future story.
A quick piece of inside baseball: If you want to optimize your purchase price, make sure no single customer represents more than 20% of revenue, that you’ve built a strong second management layer, and that you can demonstrate at least 10% growth (20% is better) over the last three to four years. And if you’re seriously considering a sale, it’s generally a bad time to pursue aggressive tax optimization because adjustments to reported numbers are often difficult to negotiate.
