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

  1. Overview of Managed Services Providers
  2. Service Portfolio
  3. Service Diversification
  4. MSP Market Size
  5. MSP Valuation Multiples
  6. Summary
  7. 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.

Managed IT Services by Type

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.

Managed IT Services Focus Categories

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.

Services Delivered on Top of Managed IT Services

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.

Global Market Size Forecast

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.

Key Drivers of MSP Valuations

Business Focus: Cybersecurity-focused MSPs tend to command higher valuation multiples due to the mission-critical nature of their services. In contrast, Value-Added Resellers (VARs) often attract lower valuations, given their thinner profit margins and transactional revenue model.

Recurring Revenue: MSPs with a strong base of recurring revenue from long-term contracts are valued significantly higher than those reliant on hardware sales or one-off projects, which offer less predictable income.

Customer Churn: A high retention rate—ideally above 90%—signals business stability and enhances valuation. Strong client relationships and long-term contracts reduce churn and provide predictable cash flow.

By focusing on revenue consistency, operational efficiency, and client retention, MSPs can boost their market value and attract potential buyers. Investors also consider factors such as contract terms, revenue mix, and cost structures when assessing acquisition targets.

Summary

The MSP market is poised for significant 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.