MSP Acquisitions: Is It A Seller’s or Buyer’s Market?

Amid so many M&A deals involving MSPs, readers have been asking if I sense whether it’s more of a seller’s market (high valuations) or buyer’s market (lower valuations). I’ve shared a standard answer in recent weeks — but now I’m about to change it.

My standard answer: It’s a fair market — meaning that valuations seem to be within reason… buyer’s aren’t overpaying for MSP businesses, but sellers also aren’t selling at a market discount.

But I think my statement needs some refinement — based on a Q2 2016 small and midsize business valuation report from IBBA and M&A Source Market. Take a close look at that report and you’ll find the following statement:

“Businesses in the smallest market sector (which represents roughly half of all businesses sold this quarter) are positioned in a buyer’s market. Advantage shifts, however, as deals exceed $1 million in value.”

Translation: For the smallest of deals it’s a buyer’s market — meaning that sellers don’t have much leverage since there are so many small businesses from which to choose. Start moving into the lower midmarket, and the pendulum shifts just a bit toward the seller — since it’s really difficult for buyers to find high-quality sellers that have successfully scaled their organizations.

Of course I’m painting with broad strokes here. And I’m applying a general SMB industry report to the far more targeted MSP market — which could be a mistake on my part.

Still, I get the sense that buyers aren’t willing to pay much of a premium — if any — for tiny businesses. While sellers that have successfully scaled their MSP operations have some leverage at the negotiating table…

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    Arlin Sorensen:

    I agree. It has changed to be a buyers market over the past 6 months. I don’t see the shift happen til deal size is over 2.5m but overall think this is right on. That said, valuations are still good and people are still willing to pay for companies that have a history of making money.

      Joe Panettieri:

      “…people are still willing to pay for companies that have a history of making money…” < -- Absolutely. -jp

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