How to Sell an MSP

The short version

MSPs are among the most sellable small businesses in the market. The reason sits in the revenue model. Most of the money arrives every month under agreement. A buyer is not purchasing a stream of one-off projects. A buyer is purchasing a book of clients that pays on schedule.

That quality comes with scrutiny. Buyers will test how contracted the book really is. They will test who does the work. They will test what the margin looks like once hardware resale is stripped out. An MSP that passes those tests gives a buyer income from the first month. That is why these firms draw serious buyers at fair prices.

What buyers look at

A buyer studies the book before anything else. Expect detailed questions on each of the following.

• Monthly recurring revenue. Buyers want the MRR figure on its own. They also want its share of total revenue.
• Signed agreements. Buyers count clients on signed agreements. They count clients riding month to month as a separate group.
• Agreement terms. Buyers read the term length on each agreement. They note renewal dates and exit clauses.
• Service gross margin. Buyers keep service margin apart from hardware resale. Hardware passes through at thin margins and proves little about the firm.
• Client concentration. Buyers measure the revenue share of the largest client. They also measure the top five clients as a group.
• The tech bench. Buyers ask who can run the stack if the owner steps away. A named senior tech or service manager changes that answer.
• Tool stack and documentation. Buyers review the PSA and the RMM setup. They sample tickets and client documentation for completeness.
• Security practices. Buyers ask how access to client systems is controlled. They ask how the firm stores and protects credentials.

What your MSP is worth

Most MSPs are priced on earnings. The earnings measure depends on who runs the day to day.

If a service manager or senior tech runs operations, buyers usually price on EBITDA. That measure counts earnings before interest and taxes. It also sets aside depreciation and amortization. The key point is simpler. EBITDA assumes a paid manager sits in the owner seat.

Established small MSPs often trade around 4x to 6x EBITDA. The band moves with size. It moves with margin. It moves with the quality of the recurring book.

If the owner still runs the help desk and holds the client relationships, buyers price on SDE instead. SDE means seller discretionary earnings. It adds the owner salary and benefits back into the profit figure. Owner-run shops trade at lower multiples than manager-run firms. The smaller earnings base and the smaller multiple reflect one fact. The buyer has to replace you.

Two MSPs with equal revenue can land far apart in price. The firm with contracted revenue and a real bench earns the higher figure.

Getting ready

Preparation for an MSP sale is mostly inventory work. Start with the agreements and work outward.

• Build a clean agreement inventory. List every client agreement in one place. Record the term and the renewal date for each one.
• Close documentation gaps. Write client documentation a stranger could follow on a first read. Cover networks and line-of-business applications and backup routines.
• Separate the margins. Report service margin apart from hardware resale. Show at least the last two full years that way.
• List the tool stack. Name every platform the firm pays for. Note what each platform does and which clients depend on it.

Clean records shorten diligence. They also protect the price you agreed at the start. Most late price cuts trace back to numbers the seller could not prove.

The direct route

You can also sell directly to a buyer. RockHaven Capital is one such buyer. We are the buyer, not a broker. That means no listing and no public marketing of your firm. The process stays confidential from the first call. RockHaven charges sellers no fees, ever.

1. A short confidential call. We learn the shape of the firm. You ask your questions and hear straight answers.
2. A review of the numbers. We study the financials and the agreement book. The review runs under a confidentiality agreement.
3. A written offer. The offer states the price in plain language. It also states the structure and the main terms.
4. Diligence and closing. We verify the records together. Then the deal moves to a purchase agreement and close.

Once terms are agreed, a close usually takes four to eight weeks. Software firms and other service firms are considered case by case. The fit conversation costs nothing and commits you to nothing.

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