The MSP Valuation Series | Part 3: Understanding Buyer Types

Based on insights from the MSP Valuation Scorecard workshop series hosted by Kevin Clune of MSP Growth Hacks, featuring Hannah Paige, Director at Worklyn Partners and CFO at Harbor IT.

In Parts 1 and 2 of our MSP Valuation Series, we explored the key drivers that determine your MSP's value and actionable strategies to increase that value. Now, we're shifting focus to explore the types of buyers you may encounter, deal structures, and the broader exit paths available to MSP owners.

Platform vs. Add-On: Understanding Your Position in the Market

Buyers typically classify MSP acquisitions as either platform investments or add-ons.

“Platform investments are viewed as a starting point for further acquisitions,” Paige notes. “95% of the time, a platform is the buyer’s first acquisition in a specific industry. These companies are typically operationally mature, well-oiled machines that are not only profitable but also have the leadership, systems, and scalability to support future add-on acquisitions with minimal disruption.” In the MSP space, platforms generally have revenues exceeding $10 million, EBITDA over $2 million (with $4 million being ideal), and more than 30 employees.

On the other hand, add-ons are typically smaller companies with revenues below $10 million, EBITDA under $2 million, and fewer than 30 employees. According to Paige, “These businesses often lack some aspect of operational maturity, whether it’s in people, processes, or systems. In many cases, the CEO or founder is looking to retire or step back from day-to-day operations. Some founders may stay on in a limited capacity, like taking a sales role, but they’re typically not looking to remain CEO. They’re looking for a home for their business, and don’t necessarily have a formal succession plan.”

The Buyer Landscape: Who's Acquiring MSPs?

"Not all buyers are created equal," Paige emphasizes. "Understanding who they are and what they're looking for can help you tailor your strategy."

Private equity firms are the most common buyers in the MSP space, accounting for roughly 70% of buyers. They typically seek majority buyouts, acquiring a controlling stake in the company. According to Paige, “Even if you want to stay involved and roll some equity, you're rolling a smaller piece of the pie, and you're giving up control. These firms focus on acquiring MSPs that are already profitable, aiming to elevate performance and execute a ‘buy and build’ strategy — acquiring a platform and then expanding through organic growth and add-on acquisitions. They’re often willing to pay a premium for strong management, consistent EBITDA, and significant growth potential.”

Private equity-backed strategics are MSPs that were the platform investment and are now “re-entering the acquisition market to buy up smaller companies to add to their platform, accelerating growth faster than they could through organic means alone.” For these buyers, the goal is to fill service gaps, extend geographic reach, and acquire specialized capabilities that can enhance their platforms. “They might pay more if there are clear synergies or a specific gap in their offering,” Paige notes.

Established MSPs are also active acquirers, focusing on expanding their business through inorganic growth, acquiring new customers, employees, and capabilities.

Independent sponsors take a distinct approach, often with a more hands-on, operationally focused strategy. “Independent sponsors are backed by some form of capital, but it’s not from a large institutional name,” Paige explains. “Whoever the independent sponsor is typically plans to be operationally involved in the business.” The process can be less predictable, with potential financing challenges. However, for owners willing to roll equity, independent sponsors can offer substantial upside. “It’s about fit and trust,” Paige emphasizes. “They’re looking to run and build the business with you.”

Search funds, a type of independent sponsor, involve entrepreneurs specifically looking to acquire and operate a single MSP. The goal is to focus on operational improvement and long-term value creation. “They’re often first-time owners looking to take your spot as CEO and bring your business to the next level,” Paige explains. They are typically backed by investors who have provided capital specifically for the acquisition. “Search funds can be a good fit if you don't want to sell to private equity, don't want to keep running your business, and don't have anyone to pass the business down to,” Paige notes.

Growth equity and venture capital investors are also becoming more active in the MSP space, especially when it comes to innovative, AI- and tech-enabled businesses. As Paige explains, “There’s a new wave of venture and growth equity capital entering the MSP space — investors who are getting involved earlier in a company’s lifecycle, often by acquiring smaller, minority stakes.” Unlike traditional private equity buyers, these firms tend to take a lighter operational approach. “They’re not going to be deeply involved in day-to-day management,” Paige notes, “but they’ll support your growth by making key introductions and connecting you with the right people.”

Deal Intermediaries: Brokers vs. Bankers

“You can go through a deal process by yourself — without a broker or a banker,” Paige says. “But if you feel like you need more support throughout the process, that’s when you might bring in a broker or banker to help sell your business.”

Brokers act as the middlemen, connecting sellers with a wide range of potential buyers, often through online aggregator platforms. “They tend to work on smaller deals, typically $5 million or less,” Paige notes. “They definitely charge less than a banker, but they’re not doing as much of the heavy lifting.” In the MSP space, broker success fees usually range from 8% to 12%, with 10% being most common. Their focus is on introductions rather than managing the full deal process. “They’re not really scoping out buyers, working on valuation, or reading legal documents,” Paige explains. “They’re just getting you in contact with buyers in the space.” For sellers who want to understand the buyer universe but don’t need full support, she adds, “I think brokers are a safe way to go.”

Investment bankers, on the other hand, offer a much more comprehensive level of involvement. “They’ll help soup to nuts,” Paige says. “From valuation, to introducing you to buyers, to helping you vet if they’re the right fit.” Bankers typically run more formal processes, holding buyers accountable to submit bids, ask questions, and move along a clear timeline. “They’re more expensive than your brokers because they’re doing more work,” she explains. Some also have minimum revenue or EBITDA requirements and won’t take on a deal unless it meets certain thresholds. “They usually charge a percentage of the business, plus an upfront retainer — totally dependent on who the banker is.”

So how do you decide? As Paige puts it, “With brokers, you're paying less, but you're getting less hands-on support. With bankers, you're paying more, but you're getting someone to quarterback the entire process and handle the heavy lifting. If you feel like you need the most hand-holding, I would go with the banker.”

Finding the Right Fit: Strategic Considerations for Your Exit

Understanding the landscape of potential buyers is a crucial step as you consider your MSP's future. Each buyer type brings different strengths, priorities, and approaches to acquisitions.

"The right buyer isn't just about who offers the highest number," Paige concludes. "It's about finding alignment in terms of vision, culture, and approach. Think about what matters most to you, and seek out the type of buyer that best aligns with those priorities."

In the next article in our series, we'll delve into the mechanics of deal structuring, including the various components that make up the purchase price, how payments are structured, and how to negotiate the deal to ensure your transaction aligns with your personal and financial goals.

Want to better understand your MSP's valuation, or explore your exit options? Let's talk. Schedule a meeting with me here.