What Private Equity Looks for When It Buys an MSP

Private equity is the buyer in most MSP deals now, and the list it scores a target on is public. Omdia counted 169 publicly announced MSP acquisitions in 2025, and a private equity firm was in 69 percent of them, either as the buyer or behind the platform doing the buying. Drake Star counted 111 MSP and IT services transactions in the second quarter of 2026 alone, up 9 percent on the quarter, and reported that the ten most active acquirers had each closed four or more deals since the middle of 2024. Those acquirers are platforms: MSPs owned by a fund, buying smaller MSPs on a schedule.

This guide is the scorecard those platforms run, line by line, with the published number behind each line. It is written for two readers. The MSP owner who wants to know how a buyer will read the business. And the fund or platform executive who already owns an MSP and wants to run the same list on the next bolt-on and, eventually, on the exit.

Who is buying and why

A fund buys an MSP for the arithmetic of recurring revenue. Service Leadership’s 2026 industry profitability report, its twenty-first, put MSP revenue growth at 9.6 percent in 2025, up from 7.1 percent the year before, with adjusted profit growing 17.1 percent, and it recorded the sixth straight year in which the best-run providers kept 19 percent or more of revenue as adjusted EBITDA (profit before interest, tax, depreciation and amortization). A business that grows high single digits, converts a fifth of revenue to profit, and bills most of it monthly under contract is an asset a fund can borrow against and build on.

The sponsors say as much in their own releases. When AEA Investors partnered with Magna5 in February 2026, its partner Dan Schorr described the segment as one “where heightened cybersecurity risk and increasing regulatory requirements are driving accelerating demand for trusted full-stack technology partners.” Berkshire Partners and Court Square made a similar case when they invested in Thrive in January 2025.

The mechanism is buy and build. A platform buys small MSPs at a small-company multiple, folds them in, and the combined company is worth a large-company multiple at exit. M&A Signal’s 2026 MSP M&A report gives the textbook version: a regional MSP with ten million in revenue bought at 7 times profit, once inside a national platform with a more diversified client base, contributes to an enterprise valued at 10 to 12 times. Drake Star’s July 2026 update put the two ends of that spread further apart: MSPs under 1.5 million in EBITDA trade at 5 to 7 times, while scaled platforms above 15 million in EBITDA with strong recurring revenue command 16 to 18 times. Every criterion below exists to protect that spread.

Table 1. MSP deal activity, 2025 to 2026

Tracker	What it counts	Count	Period
Omdia (April 2026)	Publicly announced MSP-related deals	169, PE in 69%	Full year 2025
Drake Star (Q3 2025 report)	MSP and IT services transactions	108, up 17% on the quarter, $2.6B disclosed	Q3 2025
Drake Star (July 2026)	MSP and IT services transactions	111, up 9% on the quarter	Q2 2026
M&A Signal (March 2026)	Estimate including undisclosed deals, aggregated from CompTIA, ChannelE2E and MSP Success	466, $4.3B+ disclosed value	Full year 2025

The trackers disagree because they count different things. Omdia counts announced deals; Drake Star counts IT services broadly; M&A Signal’s figure is an estimate that includes deals nobody announced. Use the Omdia number for what is verifiable and the others for direction.

Size: the entry floors

Platforms publish their floors. Evergreen Services Group, the Alpine Investors platform that announced its hundredth acquisition in June 2025, told ChannelE2E in May 2024 that it looks at “businesses that are roughly $3 million in revenue, half a million in adjusted EBITDA and above, and at least 50% recurring revenue.” New Charter Technologies, backed by Oval Partners, looks at MSPs of five million in revenue or one million in EBITDA and above, and its chief executive Peter Melby put the other filter plainly: “We don’t buy turnarounds, we don’t buy fixer-uppers.”

Below those floors a deal still happens, but as a tuck-in at a tuck-in price. M&A Signal’s ladder of typical bolt-on multiples runs by recurring revenue, and the bottom rung is the widest gap.

Table 2. Typical bolt-on multiples by annual recurring revenue (M&A Signal, 2026)

Annual recurring revenue	Typical EBITDA range	Typical multiple of EBITDA
Under $2M	Under $500K	4 to 6x
$2M to $5M	$400K to $1M	5 to 7x
$5M to $15M	$1M to $3M	7 to 9x
$15M to $40M	$3M to $8M	8 to 11x
$40M and above	$8M to $15M+	9 to 13x

Source: M&A Signal, The 2026 MSP M&A Report, March 2026 (publisher’s typical ranges). Drake Star, July 2026, gives the market endpoints as 5 to 7x under $1.5M EBITDA and 16 to 18x above $15M EBITDA for scaled platforms with strong recurring revenue.

The ladder is the reason size is a criterion in itself. A business under two million in recurring revenue takes a one-to-two-turn discount in M&A Signal’s table before anything else about it is examined. Two MSPs with the same margin and the same client quality sell at different multiples because one of them crossed a tier line.

Financial criteria

Recurring revenue and contract structure

The first question is how much of the revenue repeats under contract, and the second is what the contract says. Evergreen’s floor is half; M&A Signal discounts a business one to two turns once time-and-materials work exceeds 40 percent of revenue, and names the fully managed, all-inclusive agreement priced per seat or per device, on a three-year term with auto-renewal, as the most valued contract structure in the market. Three-year terms on their own earn half a turn to a full turn in its table.

Most MSPs are not there. Kaseya’s 2024 benchmark survey of 984 MSPs asked what term covered more than half of each provider’s client base: 24 percent said month-to-month, 26 percent said one year, 6 percent said one to two years, 9 percent said two to three years, and 7 percent said longer than three years. Seventy percent had no clients at all on a term longer than three years. A buyer reading a contract schedule is looking for the minority.

Table 3. Contract terms covering more than half of an MSP’s client base (Kaseya, 2024, n=984)

Predominant term	Share of MSPs
Month-to-month	24%
One year	26%
One to two years	6%
Two to three years	9%
Longer than three years	7%

What counts as recurring is narrower than most owners assume. Monthly managed agreements count. Annual projects that happen to repeat, break-fix from loyal clients, and hardware refresh cycles do not, however dependable they feel from the inside.

Margin

M&A Signal expects a well-run MSP between five and forty million in recurring revenue to keep 18 to 28 percent of revenue as profit once the owner’s compensation and one-time items are normalized. Below 15 percent reads as an operating problem the buyer will have to fix. Above 30 percent gets checked in the other direction, for costs that were left out. Service Leadership’s best-in-class line, 19 percent or more for six consecutive years, is the benchmark most buyers carry in their heads.

The buyer does not take the margin on the seller’s word. A quality of earnings review, a report from an accounting firm that rebuilds profit from the ledger, tests every add-back. M&A Signal’s own preparation advice is two to three years of accrual-basis financials with every adjustment documented and a QoE from a reputable firm done before going to market.

Growth

Funds underwrite growth because the return depends on it. The market they are buying from is uneven. Kaseya’s 2026 State of the MSP report, from 1,061 MSPs surveyed in November 2025, put the largest group of providers in the 6 to 10 percent band for average monthly recurring revenue growth over three years, with a growing share under 5 percent and a smaller group above 15 percent.

Table 4. Average MRR growth over the past three years (Kaseya, 2026, n=1,061)

Growth band	Share of MSPs
Declining	7%
0 to 5%	24%
6 to 10%	27%
11 to 15%	14%
16 to 20%	11%
More than 20%	17%

Read against Service Leadership’s 9.6 percent industry revenue growth for 2025, the table says a third of MSPs grew at or below 5 percent. Those businesses sell, but as add-ons whose growth the platform will supply, and the price reflects it. A buyer will rebuild the growth story client by client, so a down year needs a specific explanation, not a general one.

Operational criteria

Client concentration

Concentration is the most common reason a deal reprices in diligence. M&A Signal’s largest single discount, two to three turns, applies when fewer than five clients make up more than half of revenue; its example is three clients at 60 percent. The profile it says draws the most competitive bidding is 50 to 100 or more clients with no single one above 5 to 8 percent of revenue.

Tim Mueller of IT ExchangeNet, an MSP-specialist M&A advisor, wrote in July 2026 that with a single client above 20 percent of revenue “you don’t own a diversified, resilient business,” and described the consequence: often 30 to 40 percent of proceeds tied up in earnouts or escrow, with a 20 to 25 percent value hit if that client leaves after close. The buyer rarely walks. The buyer restructures the price so the seller carries the risk.

Owner dependency

A fund is buying a business, not hiring a founder. M&A Signal prices management depth beyond the founder at half a turn to a full turn of premium and an owner-operator with no succession plan at one to two turns of discount, with the note that the discount usually arrives as an earnout or a transition employment agreement rather than a lower headline number. The diligence test is practical: can the business run for a month with the owner away, who holds the top ten client relationships, and who signs the vendor contracts.

Tool stack and documentation

Standardized operations are worth half a turn in M&A Signal’s table for a modern PSA and RMM stack, and more for automation. The integration cost is why. Thrive’s president Bill McLaughlin has said each acquisition is fully integrated within nine to twelve months, on the platform’s ServiceNow instance and playbooks. New Charter centralizes accounting, finance, HR, marketing and lead generation after close. An MSP running on three RMM tools, undocumented onboarding, and tribal knowledge costs the platform a year of integration work that a standardized one does not, and the buyer prices that year in.

Security posture

Security has moved from a service line to a diligence item. The joint advisory that CISA, the NSA, the FBI and their UK, Australian, Canadian and New Zealand counterparts issued in May 2022 observed “an increase in malicious cyber activity targeting managed service providers” and expected the trend to continue. A buyer asks what its exposure is if the target is breached after close. Kaseya’s 2026 survey found 61 percent of MSPs saying most or all of their clients turn to them for cybersecurity advice, and 52 percent ranking security among their top three revenue sources. McLaughlin told ChannelE2E in 2024 that security weighs in every acquisition decision Thrive makes. M&A Signal prices cybersecurity revenue above 25 percent of the total at one to two turns of premium, and a buyer credits it only when security is priced and delivered as its own service rather than bundled into the base agreement.

Strategic criteria

Geography

Omdia found that 95 percent of 2025 deals happened in the same region as the acquirer. Platforms buy density first and new markets second. Thrive described itself as “predominantly on the East Coast, as far west as Mississippi and Texas,” and said it would keep pushing west; an MSP in a metro where a platform has no presence is worth more to that platform than its financials alone. Evergreen runs the opposite model, no integration, brands and teams retained, which means geography matters less to it and management quality matters more.

Vertical depth

M&A Signal’s largest premium, one to three turns, goes to vertical specialization in regulated industries such as healthcare, legal and finance. The reason is time: domain expertise and the compliance credentials that go with it take years to build organically, and a platform would rather buy them.

Platform or add-on

The single biggest driver of the multiple is which side of that line the business sits on. A platform candidate has a management team that can run a growth plan with more capital and more reporting than it has ever seen; an add-on’s owner can leave after a transition. Evergreen is explicit that owners set their own go-forward role and that it retains all employees; Thrive integrates everything within a year. Neither is wrong. They are different prices for different businesses.

What buyers pay premiums and discounts for

Table 5. Valuation adjustments in MSP deals (M&A Signal, 2026)

Factor	Effect on multiple
Vertical specialization (healthcare, legal, finance)	+1 to 3x
Cybersecurity revenue above 25% of total	+1 to 2x
AI and automation investment	+0.5 to 1.5x
Multi-year contracts (3+ year terms)	+0.5 to 1x
Management depth beyond the founder	+0.5 to 1x
Modern PSA / RMM stack	+0.5x
Below-market pricing or aging contracts	-0.5 to 1x
Revenue under $2M ARR	-1 to 2x
Time-and-materials revenue above 40% of total	-1 to 2x
Owner-operator with no succession plan	-1 to 2x
Fewer than 5 clients making up more than 50% of revenue	-2 to 3x

Source: M&A Signal, The 2026 MSP M&A Report, March 2026. Turns are the publisher’s stated ranges, not a regression.

Read the bottom five rows as a group. Four of them are about revenue: who it comes from, how it is billed, how much of it there is, and what it is priced at. The buyer’s checklist is, for the most part, a description of the sales engine.

How the deal gets structured

The criteria above set the multiple. The structure sets how much of it the seller collects at close. Pepperdine’s 2025 Private Capital Markets Report, surveying 68 investment bankers, found seller financing (54 percent) and rollover equity (50 percent) to be the most common tools for closing a valuation gap, with a lowered multiple (48 percent) close behind. SRS Acquiom’s 2024 deal terms study, as summarized by Fasken, put earnouts back at their historical norm of roughly one in five private-target deals, with the median earnout worth 43 percent of the closing payment, and working-capital adjustments in more than 95 percent of PE-backed deals.

Two mechanics catch MSP sellers in particular. The first is deferred revenue. Prepaid managed services are cash the seller already collected for work the buyer will have to deliver, and PKF O’Connor Davies noted in January 2026 that buyers argue it is debt-like and should come off the price, while the alternative treats only the cost of fulfilling it that way. Schneider Downs describes the same fight from the working-capital side, with a compromise the usual outcome. The second is the working-capital peg: a normalized level of receivables and payables the business must be delivered with, calculated with cash and funded debt excluded.

Timeline and preparation

Table 6. How long the process takes

Stage	Published duration	Source
Preparing the business for sale	Two to four years	Paul Cissel, in MSP Success, July 2024
Kickoff to wire, typical sell-side engagement	6 to 9 months (4 to 6 with clean financials and a QoE)	IT ExchangeNet FAQ
Confirmatory due diligence and close	8 to 12 weeks	IT ExchangeNet FAQ
Buyer-side diligence at one platform	About eight weeks	Peter Melby, New Charter, ChannelE2E, July 2024
Full integration into the platform	Nine to twelve months	Bill McLaughlin, Thrive, ChannelE2E, 2024

The preparation window is long because the rows that move the multiple are slow. Financials can be cleaned in a quarter. A client base cannot. Moving month-to-month clients to three-year agreements, adding enough accounts that the largest one falls under 8 percent of revenue, and hiring the manager who takes the top relationships off the owner each take a year or more to show up in the numbers a buyer trusts.

Sellers compete for the buyer’s attention. GTIA’s 2025 State of the Channel survey of 404 North American channel firms found 24 percent highly likely to sell within two to five years and a further 29 percent likely but less sure. Cissel’s estimate in MSP Success is that only 30 percent of businesses that go to market end up sold. The ones that do are the ones that scored themselves on the buyer’s list first.

Run the list before the buyer does

For the fund executive who already owns an MSP, the list above is a scorecard for the next bolt-on and a value-creation plan for the platform. Score every target on the discount rows before the letter of intent: share of revenue in the top five clients, share billed time and materials, recurring revenue against the next tier line, and whether the business runs without its owner. Then score the platform on the same rows at the next operating review, because the buyer at exit will. Four of the five discounts are revenue-composition problems, and revenue composition is what a sales organization changes. A platform that spends its hold moving those rows is buying at one end of Drake Star’s spread and selling at the other.