Vertical Specialization Is the Cheapest Multiple Expansion Available

The median MSP changed hands at 9.0x EBITDA in 2025. Top-quartile firms commanded 2.5 to 4.0 turns more than median peers, a spread that has roughly doubled since 2022-23. Every owner and every PE operating partner looks at that gap and asks the same question: what moves a firm from one quartile to the other?

Most of the honest answers are expensive. Recurring revenue mix takes years of contract migration. Scale takes acquisitions. Margin expansion takes operational surgery. But one lever in the 2026 valuation data is priced like a rounding error and pays like a strategy: vertical specialization.

What the data says focus is worth

M&A Signal’s 2026 MSP report quantifies what buyers pay for industry depth, and healthcare is the cleanest case. Healthcare IT specialization adds 1 to 3 turns of EBITDA at exit, and healthcare-focused MSPs charge 20 to 40 percent more than generalist competitors for equivalent endpoint coverage. The compliance complexity that scares generalists away is exactly what creates the client moat and the pricing power.

Legal IT earns its premium from bar association data-security guidance that keeps tightening, plus a fresh wave of AI infrastructure demand as firms adopt research and drafting tools they don’t know how to govern. Financial services rides a compliance-driven demand surge as the SEC, FINRA, and NYDFS keep raising minimum cybersecurity standards for firms that used to treat IT as overhead.

The common thread is regulatory gravity. Wherever a regulator makes bad IT an existential problem, clients stop shopping on price, switching costs rise, and the MSP that speaks the compliance language stops competing with the two-man shop down the street. The report’s phrasing is blunt: vertical depth creates a moat that holds against generalist platforms.

Run the arithmetic on a $3M EBITDA firm. Two additional turns is $6M of enterprise value. The investment required to earn it, which I’ll get to below, is a fraction of what that same $6M would cost through acquisitions or headcount.

The concentration trap

Before the playbook, the caveat that kills deals. Client concentration is the most common valuation reducer in MSP transactions, and the penalties are severe: a book where five clients make up more than half of revenue gives back 2 to 3 turns, per the same 2026 data. The books that attract the most competitive bidding keep every client below 5 to 8 percent of revenue.

Verticalizing done lazily walks straight into this. The temptation is to land two whale accounts in the target industry, let them grow to a third of revenue, and call yourself specialized. A buyer will call you something else: risky.

The discipline is to verticalize the offering while diversifying the logos. Twenty healthcare clients at 4 percent each is a moat. Three healthcare clients at 15 percent each is a hostage situation. Same industry focus, opposite valuation outcomes. Set a concentration ceiling before the vertical push starts and let it govern pacing: when an anchor account grows too large, that’s the signal to accelerate new-logo acquisition in the vertical, not to celebrate.

Verticalizing without rebuilding delivery

The expensive mistake is treating specialization as a delivery project. It mostly isn’t. Your RMM, your PSA, your security stack, and your service desk carry over nearly untouched. What changes sits in a thinner layer on top.

Pick the vertical from your existing book, not from a market map. Pull revenue by industry. Almost every generalist MSP discovers it already has five or more clients in one regulated industry, acquired by accident through referrals. That accidental cluster is your beachhead: reference clients, staff who already know the workflows, and proof you can service the segment.

Build the compliance wrapper. This is the real product. For healthcare it’s HIPAA risk assessments, BAA management, and audit-ready documentation. For financial services it’s mapping your existing security services to SEC and FINRA expectations and packaging the evidence. For legal it’s aligning with bar guidance and the client-confidentiality story. You’re not inventing new services; you’re re-documenting existing ones in the language the client’s regulator speaks, and charging for the translation.

Make a small number of vertical-specific stack decisions. The EHR integrations you support, the document management systems you know, the trading-adjacent platforms you’ll touch. Depth in five industry applications beats shallow familiarity with fifty.

Hire one anchor domain expert. A practice administrator turned account manager, a compliance officer turned vCISO. One credible industry hire changes every sales conversation, because prospects hear their own vocabulary.

Then accept that the hard part is the sales motion, not the tech stack. Verticalizing means walking away from off-vertical prospects, rewriting the website so the industry sees itself, showing up at the industry’s own events instead of generic IT channels, and building case studies with compliance outcomes rather than uptime stats. Most verticalization efforts fail here, in the marketing and qualification discipline, long before delivery is ever tested.

One timing note for anyone eyeing the defense vertical: the opportunity is real, but the regulatory clock just moved. CMMC’s Phase II third-party assessment requirement, originally set to begin in November 2026, was paused in July 2026 for 60 days while a reform task force reworks the program. Contractors still carry their NIST 800-171 obligations under existing DFARS clauses, so sell the underlying security work on its own merits rather than selling a deadline that may shift again.

The exit story writes itself

Eighteen to twenty-four months of this discipline changes what a buyer sees in the data room. Instead of a generalist book competing on responsiveness, they find an MSP with documented compliance methodology, industry reference density, pricing 20 to 40 percent above market with retention to match, and a client list where no single loss dents the thesis.

Buyers pay for growth they can predict. A vertical moat makes revenue durable and expansion legible: same playbook, adjacent geography, adjacent sub-segment. That’s why the premium exists, and why it has survived even as headline multiples cooled from their peak.

The 9.0x median and the 2.5 to 4.0 turn spread will both move with the market. The gap between focused firms and generalists is the part you control. Of everything on the value-creation menu, focus remains the cheapest item, and the market is currently paying one to three turns for it.