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MSP, VAR Valuations: What Your Business Is Really Worth

Paul Dippell

Paul Dippell

What’s your VAR or managed services provider (MSP) business worth? Instead of dancing around the question or offering vague estimates, Service Leadership Inc. CEO Paul Dippell arrives to the merger and acquisition (M&A) conversation with direct answers.

During ChannelE2E Podcast Episode 059, Dippell described several key business valuation metrics for VARs, MSPs and IT service providers. The figures are based on Service Leadership’s ongoing research with IT solutions providers worldwide.

MSP, VAR, IT Services Valuation Variables

Among the takeaways from Dippell’s just-completed 2015 data gathering and analysis:

  • The VAR portion of your business is worth 10 cents on the dollar. So if you’re generating $100 million in VAR-oriented revenue per year, that piece of the business is valued at $10 million.
  • Break-fix hourly support businesses are worth about 45 cents for each dollar of revenue.
  • IT project or professional services businesses are worth about 63 cents for each dollar of revenue.
  • The true managed services portion of your business is worth about $1.27 for each dollar of true managed services revenue.

Generally speaking, the valuations above are at or near all-time highs, Dippell says.

There are, of course, additional ways to look at valuation. If you look at the top one-quarter of MSPs — the top performers — those companies typically have profit margins of about 15 percent or more. For a $10 million MSP, that’s at least $1.5 million flowing to the bottom line. An business with that type of profit margin typically has a valuation of 8.17 times EBITDA. So, $1.5 million X 8.17 = a $12.255 million valuation on a $10 million MSP business.

Why Valuations Vary

No doubt, the figures will vary from company to company based on revenue mix, quality of revenue, growth rates and profit margins. But the overall findings Dippell shared are based on actual M&A deals he tracked in 2015.

For ongoing valuation and pricing coverage, be sure to track ChannelE2E’s FAQ area. We’ll make ongoing updates as more valuation data flows our way.

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3 Comments

Comments

    Michael Nelson:

    2 Questions – 1. how would you value 1.5 million in very predictable annual software support agreement revenue with a 35% gross margin? 2. How would you value telco/cloud services residual commissions?

    Joe Panettieri:

    Hey Michael,

    Sorry but I don’t have any stats that point to gross margin valuations. Most of the chatter I hear points back to EBITDA multiples.
    -jp

      michael nelson:

      well lets just say that the telco and cloud commissions is pure profit and the annual software support support agreement 15% net profit.

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