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…