This article was written by guest contributor Reed Warren, CEO of iTValuations, which offers business valuation services, tax advisory, and sell-side and buy-side advisory services.
Here’s what buyers rarely say out loud: They don’t buy MSPs based on multiples—they use multiples to justify decisions they’ve already made.
After spending the last year deep in MSP transactions, valuations, and buyer conversations, the pattern is unmistakable. The highest outcomes don’t go to the cleanest spreadsheets—they go to MSPs showing directional strength: accelerating growth, improving margins, and operational clarity.
In today’s market, value isn’t assigned. It’s inferred.
The Market Is Growing—That’s Not the Advantage You Think It Is
The macro backdrop continues to favor MSPs. Managed services are projected to grow at roughly an 11–11.5% compound annual growth rate for the next decade, driven by cloud adoption, cybersecurity pressure, AI readiness, and increasing regulatory complexity. In addition, with inflation moving below 3% and interest rates easing, 2026 is looking to be a stabler year economically for the overall MSP marketplace. That’s good news—but it comes with a catch.
If your MSP is growing at 11%, you’re not outperforming the market. You’re just rising with the tide; you aren’t increasing market share.
Buyers—especially private equity-backed platforms—are looking for MSPs that grow faster than the market, not simply alongside it. That distinction matters more than ever as deal volume accelerates and capital floods the space.
There’s nearly $1.4 trillion in private equity capital actively seeking resilient, recurring-revenue businesses. MSPs sit squarely in the bullseye. The result? More buyers, more competition, and—if you’re prepared—better outcomes for sellers.
Why Buyers Pay More for Some MSPs (Even When EBITDA Looks Similar)
Across more than 120 recent MSP valuations, a consistent pattern has emerged:
- Top-quartile MSPs
- Gross margin: ~44–55%
- EBITDA: ~17–31%
- Bottom-quartile MSPs
- Gross margin: sub-45%
- EBITDA: often below 15%
What’s surprising is not where the gap comes from.
Overhead costs are relatively consistent across quartiles—usually around 20–25% of revenue. The real difference is gross margin, driven by utilization, pricing discipline, client mix, and direct labor efficiency.
Put simply: If your gross margin is weak, no amount of expense trimming will save your valuation.
Buyers understand this. That’s why MSPs with improving margins—even if EBITDA is still modest—are often rewarded with better-than-expected multiples. Buyers are betting on where you’re going, not just where you are.
The EBITDA Range Buyers Are Competing for Right Now
One of the most interesting valuation trends right now sits in a narrow EBITDA band.
MSPs generating roughly $700K to $2M in EBITDA are consistently achieving some of the highest multiples in the market. Why?
- They’re large enough to matter.
- They’re small enough to integrate cleanly.
- They’re big enough to scale quickly inside a platform.
Ironically, businesses above $2M in EBITDA aren’t seeing multiples climb as fast, while sub-$500K EBITDA firms are increasingly facing buyer selectivity. As deal volume increases, buyers can afford to pass on lower-performing assets.
This is why timing matters.
With an estimated 70% of U.S. businesses—not just MSPs—changing hands over the next five years, supply will eventually catch up to demand. When it does, lower-quartile MSPs will feel pricing pressure first.
Why Some Deals Look Irrational—Until You See the Buyer’s Model
Some of the most eye-opening deals don’t make sense—until they do.
Consider an MSP with minimal EBITDA, poor expense control, but strong market presence and service offerings. On paper, the multiple looks absurd. In reality, the buyer sees a familiar operating model they can fix in 12 months.
For a well-run platform, the question isn’t, “What’s the multiple?” It’s, “What’s my return once this looks like us?”
That’s why a poorly run MSP can sell at an eye-popping EBITDA multiple—while a stagnant MSP with decent margins struggles to attract interest.
What Smart MSP Owners Are Doing Differently in This Market
Buyers are underwriting a story—not a snapshot. Whether you plan to sell in one year or five, the message is the same:
- Momentum beats optimization.
- Trend lines matter more than snapshots.
- Clean financials build buyer confidence.
- Gross margin is your valuation lever.
If you’re growing, improving margins, and tightening operations, buyers will compete for you—even if today’s EBITDA isn’t perfect.
If you’re flat, disorganized, or relying on “market growth” alone, time is not your friend.
The best valuations go to MSPs that look like they’re already becoming what buyers want to own.
And in this market, that story matters more than the multiple.
For more on growing your valuation, see Warren’s previous column, The Business of Building a Business: How to Scale Your MSP Beyond Yourself.
To explore the M&A process, see Kaseya’s M&A Concierge Platform for MSPs.
