MSP and VAR Valuations: What’s My Business Worth?

Answer: Valuations can vary wildly based on a range of factors. But here’s a four-part answer to at least give you some ballpark estimates.

1. 6X EBIDTA: The typical IT service provider is worth about 6 times EBITDA (earnings before interest, taxes, depreciation and amortization), according to Paul Dippell, CEO of Service Leadership Inc., a leading consultancy that aggregates IT service provider data for industry benchmarks.

2. 7X to 9X EBIDTA: Dippell says top quartile IT service providers can fetch higher EBITDA multiples (perhaps 7X to 9X). Those top quartile IT service providers tend to have a profit margin of about 19.3 percent, while average IT service providers tend to have a profit margin of about 7.3 percent, Dippell indicated in Sept. 2015.

3. CSP Valuations: This is more difficult to measure, since a full-blown CSP (for instance, a SaaS provider that develops and hosts their own applications) can fetch 10X revenues in a healthy technology market. But a niche CSP — a service provider that taps into third-party cloud apps and lacks its own intellectual property — is likely valued closer to the 6X EBIDTA multiple that Dippell mentioned, ChannelE2E believes.

4. The Valuation Gap: Generally speaking, many IT services providers believe their businesses are worth far more than the market will actually pay. Check out these valuation gap concerns, as expressed by HTG Peer Groups.

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