MSPs: staying focused in an M&A world

M&A activity in the MSP industry is running hot right now. Acquisition interest can come from existing market players seeking scale, capability or geographic reach, or from investors chasing the returns promised by growing technology needs across most markets. An approach from a corporate advisor representing a buyer, or from the buyer directly, can stir up tension, competing forces and excitement inside an MSP. Unless you decide to ignore it altogether, the approach will certainly be distracting – and not necessarily for the right reasons.

Owners not aligned

When the owners of an MSP aren’t on the same page about what they want – for example, one owner wants to retire and exit while the others want to carry on – a buyer can exploit the cracks in the armour. Terminology such as “cleaning up the cap table” comes into view, and this leads pretty quickly to owners considering how much the business is worth to each of them. For those exiting, the expected or desired value might be higher than for those who want to stay and keep building, and they will likely prefer cash over equity in the acquirer, because they won’t be in control any more. Various earn-out structures can be considered to cater for these scenarios, but the discussions are almost always fraught because of diverging desires.

The big V question

Conversations live and die on valuation: what are we going to get for the business we’ve built? The answer will very likely be less than the owners want or, worse, a good number for some owners and not for others (see alignment, above). The industry has broadly settled on a valuation metric based on earnings (profit) times a multiple – in other words, how many years would we have to wait to get our money back? Investors want a multiple on their investment, and better than 3x over three to five years is considered a good benchmark.

While the facetious answer to the valuation question is “whatever someone will pay”, in reality the structure, timing and form of payment, along with autonomy, integration and ongoing strategy, quickly move the conversation away from a raw number. A common negotiating tactic is to sell owners on the potential upside: being part of something bigger, bringing extra capabilities to their customers and, if the owners stay on, career progression into running a part of the acquirer’s business that will in time be larger than their own. Acquirers then either part with cash up front or link the payment structure to performance demonstrated after the deal. The obvious question is how much control owners would have to achieve the required performance, given the acquirer will likely want a controlling stake.

Many other factors go into valuation: the age of the business (there’s a sweet spot between too old and too young); the stability and loyalty of the customer base; revenue concentration; revenue mix; profitability; the offering; the industry verticals served; preparedness for industry change such as AI and automation – the list goes on. The “synergies” (code for cost reductions) from combining businesses usually centre on administration functions such as HR and finance, so their scope is limited – the cost can’t go to zero. The opportunity in selling the acquired MSP’s capabilities to the acquirer’s customers is potentially much higher, once integration, product development, go-to-market, branding and competition are taken into account – all under the watch of the new controllers, the acquirers.

Strategic fallout

While the distraction of a potential transaction hovers at the owner and operator level, strategy can be paralysed. What’s the best set of activities to pursue, if some of them might be made redundant by the acquirer’s capability? Will our investment in a new capability be returned to us as owners, or to the new owners – and if the latter, shouldn’t we wait? All the while, competition builds, the market moves on and time passes. Rifts caused by differing desires for the business grow. Staff smell something going on, but nothing is certain enough to announce. Customers notice service levels slipping as the owner-level hand-holding goes away. Each customer or contract loss has the potential to blow up the valuation, dent the demonstrated growth rate and scare buyers away.

Ways to stay sane

Many owners facing these issues bring in corporate advisors to guide a transaction – noting that the core questions of alignment, timing and strategic fit need answering before getting into one. A corporate advisor is who you want to negotiate a deal and see the execution through, which always takes longer, is much harder and is more distracting than first thought. But an MSP is likely to get a better outcome by addressing the factors that influence valuation described above, and these longer-term strategic plans are usually not the focus for corporate advisors.

A pause in conversations – not being pressured by the buyer’s timeline or agenda – can bring the owners and strategic decision-makers together with a new focus: addressing the things potential buyers flagged as detracting from what they would pay. With these clearly identified and plans made, ongoing engagement with a buyer is possible if the transformation required can be achieved in months rather than years. Acquisition timelines often stretch to years anyway, as the value of the business to owners and buyers is brought together over time.

The strategic refocus can take various forms. One is establishing a board with one or more non-executive directors who bring corporate-activity experience and guide the business in a way that takes all stakeholders’ values into account. Another is bringing in external advisors to help guide, inform or even execute strategy, leaving the operational side of the business to focus on customers, growth and service levels.

Whatever the case, our broad advice to MSP owners is to consider the way forward before engaging deeply with a potential acquirer. Better still, get ahead of any approach by gaming out the scenarios we’ve described here at owner or board level and seeing what might happen. It might surface things you can and should deal with now, rather than mid-deal, when downward pressure on price or deal structure is the likely outcome.

Our Value Creation & Exit Readiness review gives owners an independent, buyer’s-eye view of what their MSP is worth, what due diligence would uncover and what to improve – whether an approach is already on the table or you want to be ready before one arrives.

This article first appeared on LinkedIn on 27 October 2026.