# Buying an MSP

How MSPs price on recurring revenue, why churn and key-engineer risk set the multiple, and why the target's security posture is now a liability question.

Source: https://searchspheresource.com/guides/buying-an-msp
Last checked: 2026-10-03

## Why Searchers Target MSPs

Managed IT services offer what most Main Street businesses cannot: genuinely contracted [recurring revenue](https://searchspheresource.com/glossary/mrr), asset-light operations, and customers who [churn](https://searchspheresource.com/glossary/churn) reluctantly because switching providers is painful. The same traits attracted institutional consolidators years ago, and Drake Star counted 466 MSP acquisitions worldwide in 2025. A [searcher](https://searchspheresource.com/glossary/searcher) wins the deals consolidators skip: smaller, owner-run shops below the platform threshold, bought on relationship and continuity instead of auction dynamics.

## What the Market Pays

The publisher's IT and software services class, whose scope names managed service providers first, puts half of sold businesses between 2.20x and 3.87x [SDE](https://searchspheresource.com/glossary/sde) across 2021 to 2025, with a 2.93x median and a $700,000 median sale price. The same publisher's asking-price median runs well above that, at 4.08x. Advisory roundups quote 4x to 5x [EBITDA](https://searchspheresource.com/glossary/ebitda) for small MSPs, higher again on a smaller earnings base, so read that as the [sell side](https://searchspheresource.com/glossary/buy-side-versus-sell-side)'s. The recurring mix moves the multiple more than size does: ask every listing for the managed-versus-project split before discussing price, because a shop billing mostly hourly project work is an IT contractor whatever the listing calls it.

## Recurring Revenue Deserves Real Diligence

The multiple you pay assumes the contracts hold, so verify the assumption: read the actual agreements for term, [auto-renewal](https://searchspheresource.com/glossary/auto-renewal-clause), price-escalation, and [termination-for-convenience](https://searchspheresource.com/glossary/termination-for-convenience) clauses; reconcile monthly recurring revenue to invoices rather than the seller's summary; and compute churn over trailing years, both logo and revenue. [Customer concentration](https://searchspheresource.com/glossary/customer-concentration) deserves the same scrutiny as any business, with the added wrinkle that one anchor client's IT decision can be made by a single person changing jobs.

## The Stack and the People

An MSP's operating system is its RMM and PSA tooling plus documentation. In diligence, confirm which platforms the business runs, whether licenses and configurations transfer, and how complete the client documentation actually is, because tribal knowledge walking out the door is the MSP version of the owner keeping the customer relationships. Key-engineer risk is usually the sharpest people issue: identify who holds the senior certifications and client trust, and price their retention into the deal.

## Security Posture Is Now Deal Risk

MSPs hold privileged access to their clients' systems, which makes the target's own security posture a liability question, not an IT preference. Review incident history, [cyber insurance](https://searchspheresource.com/glossary/cyber-liability-insurance) coverage and claims, client contractual liability for breaches, and basic hygiene (MFA enforcement, access management, backup testing). A cheap MSP with weak controls can carry the industry's most expensive tail risk.

## What to Verify in Diligence

The sections above each name their own checks; this is the rest of the list. Separate monthly recurring revenue from project and hardware-resale revenue, which is lumpy and priced differently. Compute [gross margin](https://searchspheresource.com/glossary/gross-margin) per client, because an MSP with a few unprofitable anchor accounts looks fine at the [top line](https://searchspheresource.com/glossary/top-line) and is not. Confirm that engineer employment agreements and any [non-solicits](https://searchspheresource.com/glossary/non-solicitation) survive the sale. Then lay the client contracts on a renewal calendar, because every agreement that renews in the first year is a price conversation the new owner has before the relationship is theirs.

## Financeability Notes

Contracted recurring revenue reads well in an SBA lender's cash-flow analysis, and MSP deal sizes commonly fit the [7(a)](https://searchspheresource.com/glossary/sba-7a) envelope. The asset-light [balance sheet](https://searchspheresource.com/glossary/balance-sheet) means the loan rides on earnings quality rather than collateral, so lenders lean harder on contract review, concentration, and the owner-transition plan. Model debt service against revenue net of the churn you actually found, not the [trailing twelve months](https://searchspheresource.com/glossary/ttm) as marketed.

## Terms in This Industry

- **Ticket load per endpoint**: How many support tickets a managed device generates in a month, on average. It is the number that says whether a flat per-seat price is profitable, because the price is fixed and the work is not. A client running three times the ticket load of the book average is being subsidized by everyone else, and the shop usually knows which client it is without knowing the figure. Ask for tickets per endpoint by client for a year: the top two names explain most of the labor cost, and they are the two a new owner has to reprice or lose.
- **RMM and PSA**: The two platforms an MSP runs on: one watches and fixes client systems, the other bills the work. How well the pair is configured and actually used is much of the operational value. A disciplined setup scales; a neglected one hides unbillable work and churn risk that arrives with the business. Sit with a technician rather than reading a dashboard: ticket hygiene, whether alerts are acted on or muted, and whether time is captured against contracts tell you what the margin really is. Migrating either platform after closing is a project, not a weekend.
- **Technology stack**: The standard bundle of tools and vendors an MSP deploys across every one of its clients. A consolidated stack across a similar client base is efficient and salable, while a sprawl of one-off tools per client is margin leakage and integration risk wearing the clothes of flexibility. Ask how many clients sit outside the standard, and why: each exception is a tool license, a technician who has to know it, and a client who cannot be served by whoever is free. Standardizing after the sale is possible and it is a negotiation with every client it touches.
- **Rate per seat**: What a managed contract charges per user each month, the number the whole book is built on. Rates vary several-fold between providers doing similar work, and an MSP that has not repriced in five years is carrying its own inflation. It is also the cleanest lever a new owner has and the riskiest, because the clients who accepted a low rate are the ones most likely to shop it. Ask for rate per seat by client with the renewal date beside it, and ask when each was last raised.
- **Vendor consent gate**: The vendor's written approval, needed twice over: for the agreement and for every resold seat. A published partner agreement says two separate things about a sale and buyers usually check one. One major vendor's terms bar the provider from assigning the agreement without prior written consent, and separately bar it from assigning the licenses it resold to any client or third party. The vendor meanwhile reserves its own right to assign or subcontract at its sole discretion. Notice what can be missing: that agreement never mentions a change of control at all, so a share purchase leaves it untouched while an asset purchase needs permission for both halves. Read every vendor agreement for both clauses before the structure is chosen, and note the termination notice while you are in there.
- **Break-fix remainder**: The share of revenue still billed by the hour instead of under a contract. It is the number that decides which multiple the business gets. A managed provider is priced on recurring contracts; hourly work is a labor shop, and almost every seller describes a mixed book with the managed half in front. Pull the invoice detail and split it: which clients are on an agreement, what the agreement covers, and how much of last year's revenue came from tickets billed outside one. A book that is a third hourly is a transition project, and the work of moving those clients onto agreements is done by the new owner in year one, at exactly the moment the relationships are least secure.
- **Material change filing**: Louisiana makes a purchased MSP serving public bodies file the ownership change within sixty days. This one is off the theme's axis and the reason is the finding. An MSP sells to businesses under private contracts, with no consumer statute over it and no client money in its hands, so unlike its five neighbors it takes nothing anybody can make it give back. What it does carry is Louisiana's registration of managed service and managed security providers serving a public body. Registration runs two years, a material change including a change of any ten percent owner is filed inside sixty days, and a public body's contract with an unregistered provider is null and void. A purchase is a material change, so the clock starts at closing. The register is not public except to a public body, so standing cannot be checked from outside the deal and has to be asked for inside it.
- **vCIO role**: The advisory seat that plans a client's technology budget and decides what the contract renews into. In most small managed-service shops the owner is the vCIO, and that seat is where renewals, upgrades and price increases are agreed. A buyer who acquires the contracts without the relationship inherits an agreement anybody can shop at its next renewal. Ask who sits in the quarterly reviews for the top ten clients and whether anyone besides the seller has ever run one. If the answer is nobody, the transition plan needs those meetings handed over in person before the seller leaves, not after.

## What the Data Says

- The Service Leadership Index 2026 annual profitability report finds [valuations](https://searchspheresource.com/glossary/valuation) and valuation multiples for best-in-class IT solution providers at record highs in 2025, with roughly a 15% [enterprise-value](https://searchspheresource.com/glossary/enterprise-value) gain for the average provider over 2024; market temperature, not a comp for any one MSP. (Service Leadership Index 2026 Annual IT Solution Provider Industry Profitability Report: https://www.connectwise.com/company/press/releases/service-leadership-report-reveals-historic-growth-for-it-solution-providers-and-the-operational-factors-defining-this-economic-shift)
- The same benchmark puts best-in-class providers at 19% or better adjusted EBITDA for a sixth consecutive year, against MSP revenue growth of 9.6% and adjusted EBITDA growth of 17.1% in 2025. That is why buyers pay for margin quality and operational discipline rather than top-line alone. (Service Leadership Index 2026 Annual IT Solution Provider Industry Profitability Report: https://www.connectwise.com/company/press/releases/service-leadership-report-reveals-historic-growth-for-it-solution-providers-and-the-operational-factors-defining-this-economic-shift)
- Drake Star's quarterly MSP report counts 466 MSP M&A deals in 2025 at $4.3 billion of disclosed value, about 20% more than 2024. The tracker is worldwide, so it sizes the consolidation wave a searcher bids alongside and is not a count of American targets. (Drake Star Partners, Q4 2025 MSP Market Report: https://www.drakestar.com/news/2025-msp-ma-report-launch)

Margin context, from IRS Schedule C aggregates (TY2023): computer systems design services ran a 37.0% net margin across all filers and 51.2% among profitable ones; a listing far above the second number is making a claim about add-backs (https://searchspheresource.com/data/industry-economics).

## Who Else Is Buying in This Industry

- A searcher bought one: 360 Smart Networks (2023, Terrance Story). Outsourced IT services for small companies. (https://searchspheresource.com/data/search-acquisitions/360-smart-networks)
- A searcher bought one: Inzo Technologies (2023, Nick Akers). St. Louis managed IT, bought as STL Communications. (https://searchspheresource.com/data/search-acquisitions/inzo-technologies)
- A searcher bought one: One Source (2021, Tim Meng). Managed IT and communications, from a predecessor. (https://searchspheresource.com/data/search-acquisitions/one-source)
- Prospect Partners (Chicago, Illinois): Calls its target the pre-middle market, which is genuinely small: the range where a self-funded searcher is a real rival bidder. Fund V closed at $225M. Newest here: Florida Technology Specialists (into Entech) · 2026 · A Florida managed IT company taken as a partnership; the brand retires this year and its owner joined the platform. 2 more confirmed on its profile. (https://searchspheresource.com/buyers/prospect-partners)
- Kingsway Corporation (Chicago, Illinois, runs a searcher program): A listed holding company that hires an early-career operator first and buys the business second, so its plumbing deals are bid by someone running the searcher's own play with a public balance sheet. Newest here: Romeo Computer Company · 2026 · A Michigan managed IT and cybersecurity firm, the accelerator's fourteenth, bought by a subsidiary for $2.4M. 3 more confirmed on its profile. (https://searchspheresource.com/buyers/kingsway)
- Alpine Investors (San Francisco, California, runs a searcher program): People-first private equity behind Apex Service Partners, the country's largest HVAC, plumbing, and electrical consolidator. Its CEO-in-Training program hires operators into the businesses it buys. Newest here: OSIT (into Evergreen) · 2026 · An employee-owned MSP joining Lyra under Alpine's Evergreen, the platform that bought 33 MSPs in 2025 alone. (https://searchspheresource.com/buyers/alpine-investors)
- Evergreen Services Group (San Francisco, California, runs a searcher program): A prolific managed IT buyer, and a permanent one: it says it never divests, pays all cash, closes inside ninety days, and passed its hundredth acquisition in its seventh year. Newest here: Next7 IT · 2025 · A twenty-six person Pittsburgh area managed service provider serving small businesses. 2 more confirmed on its profile. (https://searchspheresource.com/buyers/evergreen-services-group)

## What It Costs to Replace the Owner

The multiples are quoted on SDE, which adds the owner's pay back into earnings, so they hold only if you do the owner's job. For this trade the replacement is usually the technology manager who owns delivery, paid a median of $175,140 a year nationally; at a 3x multiple that wage takes about $525,420 off what the business is worth to you. Computer and information systems managers, BLS Occupational Employment and Wage Statistics (2025), national, all industries, before payroll taxes and benefits (https://searchspheresource.com/data/manager-wages).

## The Numbers That Run This Business

- Monthly recurring revenue and churn
- Revenue per endpoint or seat
- Contract renewal calendar
- Ticket volume per technician
- Client security posture exceptions

Site index for machines: https://searchspheresource.com/llms.txt