Managed Service Providers (MSPs) have become an integral part of modern business operations, enabling organizations to efficiently manage their IT infrastructure. As businesses increasingly turn to outsourced IT solutions, the MSP sector has experienced substantial growth, creating significant opportunities for investors and industry players alike.
With thousands of MSPs operating globally, the market has evolved into a dynamic space for mergers and acquisitions (M&A). Larger firms are actively pursuing consolidation strategies to expand their service offerings and geographic reach. Key valuation drivers in these transactions include revenue growth, recurring income streams, and overall profitability.
This article provides insights into the MSP market, exploring valuation trends in both private M&A transactions and public markets. By analyzing market dynamics and buyer expectations, we aim to offer valuable perspectives on the factors shaping MSP valuations and the future outlook for businesses in this competitive landscape.
Table of Contents
- Overview of Managed Services Providers
- Service Portfolio
- Service Diversification
- MSP Market Size
- MSP Valuation Multiples
- Size Effect on MSP Valuation
- Understanding MSP Valuation Drivers
- Summary
- About Aventis Advisors
Overview of Managed Services Providers (MSP)
Managed Service Providers offer a diverse range of IT services that help businesses optimize operations and technology infrastructure. These services include network management, data protection, cybersecurity, and cloud solutions.
Outsourcing IT functions to MSPs allows companies to focus on core priorities while leveraging specialized expertise and cutting-edge technology.
According to Clutch, MSP services can be categorized into key areas:
- Network management, ensuring a company’s IT infrastructure remains robust, secure, and efficient.
- Data backup and recovery, protecting against data loss and enabling quick restoration in emergencies.
- Cybersecurity services, such as managed security and intrusion detection, to defend against cyber threats.
- Cloud management, helping businesses leverage scalable and flexible cloud solutions.
- Help desk support, providing timely technical assistance to minimize downtime and improve productivity.
Most MSPs go beyond providing services—they also supply hardware, resell software licenses, and cloud services, operating within a broad and flexible business model.
Service Portfolio
An analysis of Clutch data on MSPs reveals that cybersecurity services are in high demand due to the increasing frequency of cyber threats. Businesses are prioritizing the protection of their data and IT infrastructure, making cybersecurity a critical focus area. Security services currently lead the most popular MSP specializations, accounting for 32%, driven by growing cyber threats, compliance requirements, and the adoption of zero-trust security frameworks.
Network services is the other common area of focus reflecting the demand for scalable connectivity amid the rise of hybrid work models and cloud adoption. Meanwhile, managed hosting services, with a 27.4% market share, highlight a growing trend toward outsourcing infrastructure to achieve cost efficiency and scalability.
Service Diversification
With strong access to clients, many MSPs are expanding their service offerings to provide a one-stop-shop service. Diversification has become a key strategy, helping MSPs mitigate risks and enhance efficiency. This approach enables MSPs to bundle services together, delivering tailored solutions that align with specific business needs.
Our analysis of Clutch data reveals that many MSPs are expanding their portfolios by offering additional services beyond core managed services. Notably, 40.8% of MSPs provide IT strategy consulting, reflecting a strong demand for aligning IT infrastructure with business goals. Managed security services, offered by 32.3% of MSPs, emphasize the critical need to address evolving threats. Cloud consulting and systems integration, at 30.1%, highlight businesses’ focus on operational optimization and scalability.
While IT staff augmentation and custom software development services are sometimes provided by MSPs, they are more commonly offered by larger offshore providers that focus on a broader scope of services.
MSP Market Size
The global market for Managed Service Providers (MSPs) is poised for substantial growth, driven by the increasing dependence of businesses on outsourced IT services. Market forecasts predict that the MSP sector will expand from USD 312 billion in 2023 to USD 658 billion by 2030, reflecting a compound annual growth rate (CAGR) of 11.4%. This strong growth highlights the growing importance of MSPs in supporting business operations and their expanding role in the global economy.
Several factors are driving the impressive growth of the MSP market. The ongoing digital transformation across industries is a major catalyst, as businesses modernize their IT infrastructure and adopt emerging technologies. The demand for cloud migration services is increasing, allowing companies to benefit from the scalability and flexibility of cloud computing.
The growing complexity of IT environments and the need for specialized expertise are also key contributors to market expansion. Both small and large MSPs are broadening their service offerings to address evolving client demands. As a result, MSPs are expected to gain a larger market share by delivering cost-effective and efficient IT solutions.
Several key factors and trends are shaping the MSP market’s growth. The rapid advancement of technologies like artificial intelligence and machine learning is creating new opportunities for MSPs. These technologies enable innovative solutions that enhance operational efficiency and drive business growth.
MSP Valuation Multiples
Private M&A Transactions
EV/EBITDA is the primary valuation multiple used for MSPs, as they are service-based businesses that generate immediate cash flow and require minimal investment in R&D.
Our analysis of disclosed valuation multiples for 37 MSP transactions revealed a median multiple of around 8.2x EV/EBITDA. It is important to highlight that the median transaction size was $18M.
Our experience and market observations indicate that valuation multiples typically range from 5-8x EBITDA for smaller companies and can drop to 3-4x EBITDA for the smallest businesses with revenues under $1-2 million.
Listed MSP valuations
Challenges in Benchmarking Public MSP Valuations
One of the main challenges in assessing public market valuations for MSPs is the lack of pure-play MSPs among listed companies. Despite a proliferation of MSP roll-ups in the United States and abroad, none of them have listed so far to provide a strong benchmark.
Most firms providing managed services do so as part of a broader IT services or software portfolio rather than operating exclusively as MSPs. This effect is even more pronounced when looking at larger public companies, where managed services often represent just one segment of a diversified business model.
As a result, direct valuation comparisons are difficult, as financial metrics are influenced by revenue streams from areas such as software licensing, IT consulting, system integration, and cloud product sales. Nonetheless, to establish meaningful valuation benchmarks, we have identified a group of publicly listed companies that represent the MSP sector.
Selected Public MSP Comparables
For our analysis, we selected 10 listed companies with a significant portion of their business in managed services. While pure-play MSPs are relatively rare, our sample collectively provides a relevant reference point for industry valuation trends.
EV/EBITDA multiples for MSPs
Since MSPs are service-oriented businesses with relatively low capital intensity, EV/EBITDA is the primary valuation multiple used by investors and acquirers. This metric provides insights into a company’s ability to generate operating profit and its efficiency in converting revenue into cash flow.
Historical Trends in EV/EBITDA Multiples
- The median EV/EBITDA multiple for MSPs has fluctuated significantly over time, ranging from 7.8x (H2 2018) to 17.5x (H1 2021)
- The highest valuations were recorded during the post-COVID tech boom, when investors prioritized IT services and cloud-driven business models
- The median EV/EBITDA multiple in H2 2024 stands at 11.4x, reflecting a return to pre-pandemic levels
EV/Revenue multiples for MSPs
The EV/Revenue multiple serves as a high-level indicator of how investors perceive a company’s growth potential, recurring revenue composition, and market position. However, it is important to note that due to the wide variation in margin profiles across IT services businesses, revenue multiples can be less useful when comparing MSPs.
Historical Trends in EV/Revenue Multiples
- The median revenue multiple for our selected MSPs has ranged from 0.5x (H1 2020) to 1.5x (H2 2021), with fluctuations driven by macroeconomic conditions and industry trends
- In H2 2024, the median EV/Revenue multiple stands at 1.3x, slightly above the long-term average, reflecting stable investor sentiment toward MSPs
This data suggests that revenue-based valuations for MSPs remain relatively modest, emphasizing the importance of profitability and recurring revenue growth for achieving higher valuations.
Size effect on MSP Valuations
Larger MSPs command higher valuation multiples, benefiting from stronger cash flow, higher recurring revenue, and key client contracts. In contrast, smaller MSPs face significant discounts, as buyers perceive them as riskier, with lower scalability and growth potential.
While the data available primarily reflects overall IT services valuations, we can infer MSP valuation trends based on industry-wide M&A activity. The table below presents median EV/EBITDA multiples for IT services firms of different sizes, with MSP-specific multiples interpolated to reflect their typical positioning within the sector.
Understanding MSP valuation multiples
The table provides EV/EBITDA multiples for IT services firms across various deal sizes, illustrating the well-documented size effect in M&A transactions. Larger firms consistently trade at higher multiples, benefiting from greater economies of scale, diversified customer bases, and stronger recurring revenue streams.
To estimate MSP valuations, we first analyzed 10 publicly traded MSPs, calculating their median EV/EBITDA multiple every six months from 2018 to February 2025. We then determined the overall median of these medians, arriving at a reference valuation of 11.2x EV/EBITDA. This figure serves as a benchmark for MSPs involved in transactions exceeding $500 million.
Recognizing the established size effect in IT services, we applied a size-based valuation discount to MSPs. The discount percentage was derived from IT services transactions, where smaller firms trade at progressively lower multiples due to factors such as lower gross margins, higher customer churn, and limited scalability. By applying these relative discounts to our 11.2x benchmark, we estimated implied MSP multiples across different deal sizes.
For smaller MSPs with deal sizes under $5 million, the estimated valuation stands at 5.0x EV/EBITDA, reflecting a 55% discount compared to transactions over $500 million. These businesses tend to have lower operational efficiency and higher volatility, making them riskier acquisitions.
As MSPs scale, their valuations improve. Mid-sized MSPs in the $20M-$50M range trade at approximately 8.1x EV/EBITDA, benefiting from a larger customer base, improved operational efficiency, and stronger recurring revenue streams. This aligns with broader IT services market trends, where firms with predictable net income and future growth potential attract stronger multiples.
At the upper end, MSPs valued at $500M+ achieve 11.2x EV/EBITDA, supported by enterprise-grade contracts, economies of scale, and robust profitability. These firms are highly sought after by both private equity investors and strategic buyers, who prioritize MSPs with low churn, strong recurring revenue, and a well-diversified service portfolio.
The median IT services EV/EBITDA multiple in the dataset is 11.1x, whereas the estimated median MSP multiple is 9.0x. This suggests that while MSPs generally trade below broader IT services firms, larger MSPs with high-margin service offerings—such as cybersecurity and cloud solutions—can command premium valuations.
Key Takeaways:
- Smaller MSPs trade at a significant discount compared to larger firms, with sub-$5M MSPs estimated to trade around 5.0x EV/EBITDA, while firms valued over $500M can achieve 11.2x EBITDA multiples
- Mid-sized MSPs ($20M-$50M) are likely to be valued around 8.1x EBITDA, in line with broader IT services market trends
- The size effect is driven by operational efficiency, customer retention, and recurring revenue streams, all of which improve at scale
For MSP owners looking to maximize valuation, increasing recurring revenue, expanding service offerings, and reducing customer churn are the main factors that drive higher multiples. Buyers, particularly private equity firms, actively seek MSPs with strong recurring revenue, a scalable customer base, and specialized high-demand services. Key areas of interest include cybersecurity services, cloud solutions, and key client contracts. Smaller MSPs looking to attract the right buyer need to optimize operational costs, demonstrate future growth potential, and highlight their ability to retain customers while continuously acquiring new customers.
Larger MSPs and larger companies in the IT services space often use acquisitions as a strategy to increase market share, improve efficiency, and enhance EBITDA margins. By acquiring smaller MSPs at a discount, they can scale their service portfolio and strengthen long-term valuations. This consolidation strategy allows them to capture more recurring revenue, expand their customer base, and improve gross margin through operational efficiencies.
Ultimately, scale drives value. MSPs that build recurring revenue, invest in cloud services, and focus on cybersecurity will see higher multiples, whether in private M&A transactions or public markets. Expanding service offerings, improving net income, and demonstrating a strong track record of client retention are all critical factors in achieving a premium valuation.
Understanding MSP Valuation Drivers
Business factors influencing MSP valuations
Business focus
Cybersecurity firms tend to command higher valuation multiples due to the essential nature of their services. In contrast, Value Added Resellers (VARs) typically receive lower multiples, as their profit margins are generally thinner.
Recurring revenue
MSPs that prioritize service-based models and maintain strong recurring revenue from a loyal client base are valued significantly higher than VARs, which depend more on hardware sales or one-off implementation projects.
Customer churn
A key factor in MSP valuations, customer retention rates—ideally above 90%—signal business stability and are highly attractive to investors.
Understanding these key metrics allows MSP owners and investors to make informed decisions regarding business valuation and potential acquisitions.
By optimizing factors such as customer retention and revenue consistency, MSPs can enhance their market value and attract potential buyers. Additionally, client contracts, revenue streams, and operational costs are crucial considerations for buyers assessing MSPs.
Creating Competition in the deal
Managed Service Providers (MSPs) have become one of the most sought-after targets in the M&A market, particularly in the United States. In the segment of MSPs generating more than $1 million in EBITDA, there are consistently more buyers than sellers. This supply-demand imbalance creates a favorable environment for sellers, as strategic and financial buyers are aggressively competing to acquire MSPs of scale.
One of the most effective ways to maximize valuation in an MSP sale is by running a competitive M&A process. When multiple buyers are engaged simultaneously, the seller gains a stronger negotiation position, increasing the likelihood of securing a higher purchase price and more favorable deal terms.
There are two primary ways to create a competitive process when selling an MSP. Sellers can either work with an M&A advisor, such as us, to access a wider pool of buyers and ensure a structured process, or they can manage the sale independently by reaching out to interested buyers directly.
An M&A advisor, such as Aventis Advisors, streamlines the sale process to maximize valuation and ensure a smooth transaction. Key benefits include access to a wider pool of buyers, confidentiality management, professional negotiation expertise, and time efficiency. Advisors optimize deal terms while allowing MSP owners to focus on operations.
MSP owners can also manage the sale process independently by identifying potential buyers, particularly those who have previously shown interest or actively acquire MSPs. Engaging multiple buyers simultaneously helps create competition, increasing valuation potential. Owners must also handle negotiations and due diligence, ensuring legal, financial, and operational aspects are properly addressed.
Summary
The MSP market is poised for growth, driven by technological advancements, evolving regulatory requirements, and the growing demand for cloud migration services. Key factors such as customer retention and monthly recurring revenue play a crucial role in determining MSP valuations. By prioritizing these metrics and enhancing operational efficiency, MSPs can achieve higher valuations and attract potential buyers.
Strategic planning and staying informed about market trends are essential for sustained growth and competitiveness in this rapidly evolving industry. A clear understanding of the factors influencing valuations enables MSPs to navigate the market effectively, ensuring they remain competitive and well-positioned for future success.
About Aventis Advisors
Aventis Advisors is an M&A advisor focusing on technology and growth companies. We believe the world would be better off with fewer (but better quality) M&A deals done at the right moment for a company and its owners. Our goal is to provide honest, insight-driven advice, clearly laying out all the options for our clients – including the one to keep the status quo.
Get in touch with us to discuss how much your business could be worth and how the process looks.
