As managed service providers continue to acquire one another, readers have been asking me about MSP valuations. Are buyout prices based on specific financial multiples? Are MSPs valued based on a multiple of revenue, gross profits, net income, something else?
Frankly, it’s difficult for me to say how MSPs are valued, since so many of the recent deals involve privately held companies and “undisclosed” buyout terms. But if you have some thoughts on valuations, I’m all ears. And readers would appreciate your perspectives.
In the meantime, the pace of acquisitions in the managed service market appears to be accelerating. Two more deals were announced April 15. Here’s the quick overview:
- MediaXstream Inc., a network service provider in San Jose, has acquired Secure Media Solutions Inc. of Los Angeles. The duo will concentrate on managed networks that can securely handle high-definition (HD) broadcast applications. Terms of the deal were not disclosed.
- Layered Technologies Inc. of Plano, Texas, has acquired FastServers.net, a managed hosting company in Chicago. The combined company will offer dedicated hosting and grid computing solutions. (Side note: Layered Technologies also has a corporate blog that dispatches company info and perspectives.)
Tracking The Deals
We launched our MSPmentor M&A Tracker earlier this year in order to closely monitor industry deals. On the one hand, we expected big hardware and software companies to begin acquiring MSP platform providers (a la Dell acquiring Silverback Technologies last year).
But so far, most of the deals have involved small regional MSPs acquiring complementary companies. In particular, MSPs seem to be looking for peers that have expertise with hosted Microsoft applications. Examples include mindSHIFT acquiring Collaboration Online and Tribridge buying Productive Gap.
Keep watching the M&A Tracker for the latest deals, and feel free to share your comments on MSP valuations: What financial metrics are used, and will MSP valuations go up — or down — over the next 12 months?
Posted In: Finance | Mergers & Acquisions
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Figures I’ve heard are approximately 1.5 x recurring revenue and 1 x non-recurring revenue. These numbers swing wildly depending on the specifics of your business…but those are guidelines.
Mike
http://www.smbitpros.com
http://www.everonit.com
Mike: Thanks for going on the record with these potential metrics. I think people are sometimes wary of discussing such metrics in public, but it’s important for the managed services industry to start discussing dollars and cents.
And from your quick post, one could conclude that a pure MSP would be worth 50 percent more than a pure break-fix reseller that generates roughly the same revenue. Interesting, indeed.