Most MSP owners have a number in their head. If you pressed them on where it came from, the honest answer is usually a conference conversation, something half-remembered from an industry newsletter, and a general sense that they’ve built something valuable. Not exactly a rigorous methodology — but remarkably common.
That number is almost always wrong. Not because owners are bad at math, but because the way buyers think about value is fundamentally different from the way owners do. Owners think about what they’ve put in — the years, the risk, the relationships built over a decade. Buyers think about what they’ll get out. Those aren’t the same calculation.
The Framework Buyers Actually Use
The most common valuation method in IT services M&A is an EBITDA multiple. EBITDA — earnings before interest, taxes, depreciation, and amortization — strips away the accounting decisions that make profitability look higher or lower than it really is, giving buyers a clean, comparable measure of what a business actually earns. In IT services M&A, multiples typically range from four to eight times EBITDA. Sometimes meaningfully higher, for the right business at the right moment.
What drives that range? A handful of factors that buyers weigh simultaneously:
- Quality and predictability of recurring revenue
- Customer concentration — or the absence of it
- Whether the business can operate without the owner in the room
- Documentation of operations, contracts, and processes
- Growth trajectory over the past two to three years
Why Two $3M MSPs Can Sell for Very Different Prices
An MSP with strong MRR, a distributed client base, solid contracts, and a leadership team that doesn’t require the owner to hold everything together will attract a meaningfully different multiple than one where the founder handles the three biggest clients personally and the operations live mostly in people’s heads. Same top line. Very different story.
Buyers are paying for the story as much as the number — and the story they want to buy is one that keeps working after you’re gone.
One factor that consistently moves buyers: MRR percentage. Above 70% tends to get favorable attention. Below 50%, the questions start. Managed services contracts — especially multi-year agreements with automatic renewal — are valued more highly than project work, break-fix, or hardware sales. Buyers are purchasing future cash flows, and the more predictable those flows, the more they’re worth.
The Number on Page One Isn’t the Number You Take Home
This surprises almost every first-time seller. The figure in a letter of intent is not what lands in your account. Deal structure matters enormously — and often more than the headline price itself.
The tax treatment of an asset sale versus a stock sale alone can shift your after-tax proceeds by a meaningful margin. Earnouts, seller financing, and rollover equity all affect what a deal actually means for you financially, independent of what the buyer wrote on page one. Optimizing for that number without understanding the rest of the document is one of the more expensive mistakes sellers make — and it’s entirely avoidable.
Actionable Takeaways
1. Get a Cogent Enterprise Valuation before you go to market. Not to lock yourself into a number, but to get a clear, honest picture of where you stand, what’s driving your value — and what’s holding it back. A Cogent EV goes beyond a generic estimate: it gives you a buyer’s-eye view of your business, a defensible purchase price model, and a roadmap for improving your position before you’re ready to sell.
2. Know your MRR percentage…cold. Buyers will ask in the first conversation. If you have to calculate it in the moment, that’s not a great look.
3. Start the conversation 12 months before you’re ready to sell. The things that move your multiple take time. A Cogent Enterprise Valuation is the right starting point — and the conversation worth having well before you’re ready for the one with a buyer.
