Valuation multiples are an essential metric to consider if you own an IT company and are thinking about an exit strategy.

IT services companies typically have higher valuation multiples than other businesses because they possess unique technical expertise and operate in a growing industry. As a result, these companies often fetch a premium price when sold.

However, it is essential to remember that not all IT companies are created equal. Factors such as size, growth potential, and profitability will affect the valuation multiple potential buyers are willing to pay. As such, it is essential to understand what determines valuation multiples of IT services companies – with sufficient time, you can optimize critical metrics of your business to improve the exit valuations.

In this article, we look at valuations in M&A deals to understand the significant changes and trends in IT services valuations.


Our private market analysis is based on a database of over 6,400 M&A transactions completed between January 2015 and August 2022. Out of them, nearly 500 have disclosed valuation multiples, such as EV/Revenue or EV/EBITDA.

We focused on the changes in those multiples in the last 7 years and two of the most important factors influencing tech companies’ valuations – their size and geography.

The companies in the sample are mostly IT services businesses, software developers, MSP providers, systems integrators and other professional services firms focused on IT.

EV/EBITDA vs EV/Revenue Multiples for IT services

The most common valuation method used while analyzing IT services companies is the EV/EBITDA multiple, as the companies do not require significant upfront investments and are expected to generate positive cash flows.

The revenue multiple is sometimes used in a supporting role, for example, if the company does not have a normalized profit level for some reason.

Valuation multiples for IT services companies

Average EV/EBITDA Multiples for IT Services Companies

Among 280 deals in our sample, for which the EV/EBITDA multiple was available, the median EV/EBITDA amounted to 10.9x. That number was quite stable in the last 7 years – it has not dropped under 10x, and the highest value was 12.5x.

The 1st quartile shows that there is a significant group of especially highly valued businesses, reaching over 15x EBITDA. Among the reasons could be a strong management team, a large share of recurring revenue, or solid expertise in niche technology. Sometimes service company has a proprietary software business on the side, resulting in a sum-of-parts company valuation for two business lines.

The market value of a company highly depends on the following metrics: revenue growth, EBITDA margin, recurring revenue, customer churn, employee turnover, and customer concentration.

EV/EBITDA multiple for IT Services companies

Average EV/Revenue Multiples for IT Services Companies

Although rarely used for IT services businesses, revenue multiples can be a useful valuation method, as they are more commonly disclosed in private transactions – 466 deals in our sample.

Over the past 7 years, the revenue multiples stayed stable at around 1.2-1.3x Revenue, with best-performing companies of 1st quartiles valued above 2.5x.

A median EV/Revenue multiple of 1.3x and EV/EBITDA of 10.9x implies a margin of 12%, in line with most listed professional services firms.

EV/Revenue multiple for IT Services companies

IT Services Multiples Over Time

Unlike in public markets, valuations in private IT services transactions were remarkably stable. Changes in EV/EBITDA multiples over a number of consecutive years were negligible, and even the 1st and 3rd quartile figures barely moved.

EV/Revenue multiples behaved similarly, except for the rise in 2021 (from the previous 1.0-1.5x level to 2.0x), more in line with the public markets and valuations multiples for software companies.

The jump was not as strong as in the public markets, where the one-year increase in average revenue multiple exceeded 100%. Nevertheless, there was a big difference in 2020 and 2021 revenue multiple: +0.8x or 66%. The valuations in the 1st and 3rd quartiles also rose markedly.

One crucial factor is the rise in private equity activity. Out of 6,400 deals since 2015, more than 25% were closed by PE/VC industry. For example, in early 2022, Inetum SA was acquired by Bain Capital and Renaissance Partners for more than $2B, and in 2021 Carlyle Group bought Hexaware Technologies for $3B.

But not only the mega deals are of interest to financial investors; many buyers from this category look for smaller companies – the median size of a PE/VC deal in our sample is $226M, with 25% not exceeding $40M.

Size Effect on Valuation Multiples

Company size is one of the most critical factors determining the valuations of IT services companies. Although large and small professional service companies usually have similar business models, their valuation multiples vary widely.

Valuations of the small companies (less than $5M deal size) are therefore substantially lower – in our sample, 0.7x revenue and 6.2x EBITDA, while figures for the deals between $50M and $100M are twice as high.

IT services valuation depending on deal size

Usually, the larger the professional services business is, the less risky it gets. Big companies can serve larger enterprise accounts, delivering staff or software for big projects. Both development and HR processes are more advanced. The customer base is more diverse, so losing a large account does not significantly affect revenue.

The team – one of the crucial intangible assets of the company – is less likely to suffer from key persons leaving.

Moreover, potential buyers usually have a defined investment mandate. The private equity investors typically have a minimum revenue/size of the deal, so the competition for larger deals is higher. At the same time, strategic investors need a combination of deal value and impact on their business to make a deal worthwhile their attention.

Geography Effect on Valuation Multiple

The location of the company’s headquarters is not negligible for its price.

Our review shows that European, Asian, and American companies all have similar valuations in terms of EV/EBITDA. The difference is substantial when we consider the rest of the world, as companies outside of these regions were valued significantly lower (7.3x vs. 10-12x). Some of the reasons include smaller number of investors in these markets and difficulties in internationalizing or acquiring clients from developed countries. Also, the political risks of emerging markets add a discount to the valuations.

IT services valuation depending on region

Naturally, North America is where the most significant deals happen – the median deal size is $75M compared to $38M for the entire sample. United States is a dominant market with historically strong technology sector and the world’s biggest investors’ interest. One caveat is that many companies are only registered in the USA and have a sales office there, while most of the delivery happens in emerging markets.

Asia turned out to be the place with the highest multiples – slightly exceeding North America’s. Heavy investment in technology, primarily in China, and the focus on investing in domestic ventures could be one of the sources of overvaluation.

How to Value an IT Services company

IT services are a fragmented industry with plenty of diversity: smaller companies competing for clients and talent with multi-billion dollar players. Some companies utilize a wide technology stack, while others focus on integrating a single vendor’s software.

All this diversity makes it difficult to put a precise multiple for a “median” IT services company. Still, we can observe how the valuations change over time and how size and location affect the valuation multiples.

If you are considering selling your business feel free to reach out to us to discuss potential outcomes.

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 the company and its owners. Our goal is to provide honest, insight-driven advise, 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.

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