The Elusive MSP Everyone Wants to Buy
Service Leadership Inc. CEO Paul Dippell has received the calls. HTG Peer Groups CEO Arlin Sorensen has received the calls. I’ve received the calls. And I bet TruMethods CEO Gary Pica has received the calls.
The voice on the other end of the line represents a private equity firm, a large MSP — or both. He typically asks: “Where can I find a $10 million MSP with 20 percent EBITDA profit margins? Because I’d like to buy that MSP.”
The disappointing industry answer: For the most part, that type of MSP doesn’t exist. Instead, the vast majority of IT service providers within HTG Peer Groups are closer to $3 million to $5 million companies, Sorensen noted last week during the organization’s IT Channel Summit out “on the farm” in Iowa.
Revisiting the MSP Valuation Gap
The conversation leads back to a bigger MSP industry problem — which Sorensen calls The Valuation Gap. While the typical owner hopes to sell his or her MSP business for $3 million to $10 million — but the companies are only worth $1 million to $5 million, HTG and Service Leadership estimate.
Still, there are some signs of hope. Best-in-class MSPs typically generally EBITDA profit margins of perhaps 20 percent or more. And overall profitability among MSPs within HTG Peer Groups has steadily grown over the past few years,
But where are all the $10 million MSPs with those frothy 20 percent margins? If your company actually fits that description and you’re looking to sell, now’s the time to check in with an M&A advisor…