When it comes to selling or buying a Managed Service Provider (MSP), misinformation can cloud good decision-making. We often hear MSP owners assume their business is “too small” or “not ready” for a sale. But the market is far more dynamic and flexible than many realize. In this blog, we’ll walk through five of the most common myths about MSP M&A.
Or if you’d prefer, we also recently released a short video where we break down these five myths in detail. Watch the video: 5 Myths About MSP M&A
Truth: Smaller MSPs are sough after. While the multiples may be lower compared to larger firms, there’s still strong buyer interest, especially from mid-sized MSPs looking to expand their footprint or acquire accounts.
In some cases, where the MSP for sale is very small, the deal may be structured as a simple referral arrangement. The seller would earn a percentage of revenue over time rather than a lump sum upfront.
Truth: Key-man risk is a real concern, but manageable. Buyers often address this risk by structuring deals to include earnouts, where future payments depend on customer retention.
Owners of one-man shops who are leaving the business may also need to take on more responsibility during the transition period. However, this doesn’t make the business unsellable, it just means the transition plan becomes critical.
Truth: About half the MSPs we help sell don’t have formal customer contracts. An absence of contracts may affect deal structure, with a higher proportion of the valuation tied to performance-based payments. But many buyers appreciate client relationships and service continuity more than just paperwork.
Truth: If one or two or five clients make up most of your revenue, it raises concerns and will be a deal breaker for some buyers. However, for others this risk can be addressed through creative deal structuring (e.g., earnouts, holdbacks) and by clearly demonstrating account stability.
Truth: While MSPs with monthly recurring revenue (MRR) command stronger interest and more favorable terms, there are still lots of buyers interested in MSPs with substantial revenues pertaining to projects, time-and-materials, or block-hours. In fact, some buyers will see these MSPs as ripe for upselling, where recurring contracts can be introduced post-acquisition.
Each deal is unique, and many perceived “deal breakers” can be addressed with thoughtful planning and creative deal structuring. If you’ve held back from exploring M&A because of one of the myths above, it may be time for a second look.
If you’re thinking about selling your MSP, whether you’re ready now or just exploring your options, we’re here to help. Contact us to start the conversation.