It’s A Lot More Than EBITDA When It Comes To MSP Valuations: Exec

‘If you have even the slightest inkling of wanting to sell, you want to be prepared before you talk and start the due diligence process. Stride is an accountant firm providing advisory services for many MSPs, and what we see is, if your foundation isn’t compliant, consistent, or accurate, it’s going to start to dissuade your ability to really take advantage of opportunity,’ says Casey Seaborn, director of business development at Stride.

EBITDA, or earnings before interest, taxes, depreciation, and amortization, seems to be a key focus when it comes to looking at an MSP’s value, but it actually should be only one part of the valuation conversation.

That’s the word from Casey Seaborn, director of business development at Stride, a San Francisco-based bookkeeping and accounting company focused on helping IT services companies scale. Seaborn told an audience of MSP executives at this week’s XChange 2025 conference in Denver that there are so many components that potential acquirers look at when determining the value of an MSP.

“We hear about it all the time, EBITDA, that this MSP sold for 2x, 10x, 22x,” Seaborn said. “And the misconception is that’s where it starts, when the reality is that’s the end product. The multiples don’t start with EBITDA, but it becomes that consistent standard to compare one MSP to the next, especially when you’re looking at private equity, who’s looking at acquiring three to five MSPs a year.”

[Related: MSP Valuations: Up-Front Conversations With Potential Buyers Key To Success]

Buyers evaluate dozens of factors before applying multiples, with strong fundamentals adding 3x to 7x to an MSP’s base valuation, while weaknesses reduce valuation by 2x to 4x regardless of EBITDA, Seaborn said.

Growth in revenue and market share are important factors, he said.

“At the very least, as your revenue goes up, your market shares go up, that’s where the conversation starts,” he said. “‘Am I a candidate for potential buyer? Do I have a competitive image in my market?”

Seaborn said the MSP market currently has more buyers than sellers, but the problem is there are not enough operational, mature sellers.

“If you have even the slightest inkling of wanting to sell, you want to be prepared before you talk and start the due diligence process,” he said. “Stride is an accountant firm providing advisory services for many MSPs, and what we see is, if your foundation isn’t compliant, consistent, or accurate, it’s going to start to dissuade your ability to really take advantage of opportunity.”

Smaller, struggling MSPs may be valued at 2x to 4x EBITDA, while those with strong growth and scalability can command 8x to 10x EBITDA, Seaborn said. At the same time, private equity firms have more cash on the sidelines than any time in the last five years, much of which is due to low interest rates, he said.

“[Private equity firms want] to look to invest and increase their volume because when you look at how private equity evaluates, it’s all the math equation,” he said. “They need this many MSPs at this level of maturity, at this level of cash flow, over a five-year horizon to hit their growth targets.”

Because interest rates are holding steady, this is a good moment to be discussing buying or selling an MSP, Seaborn said.

“I’m seeing MSPs in that, let’s say, they’re halfway ready,” he said. “Their books are closed on a monthly basis. They have a good, steady operation team. They have some secondary leadership. They’re going through what we call a quality of earnings light assessment. It’s less than doing a full due diligence to just get an idea where they stand, and how well does their earnings stand up? That’s where this conversation starts. How much do you make? How much is recurring? What’s your gross margin?”

Those are the things that lead into a buyer interested in an MSP, Seaborn said.

“It’s no secret,” he said. “As you dial operational maturity, you scale, you have good sales systems, you have good processes, your bookkeeping is clean, you’re going to get better valuation.”

Buyers look for certain indicators of value, Seaborn said.

“It’s about having clear, accurate, and typically accrual-based financials that you’re able to read clearly and confidently,” he said. “I know my profit. I’m categorizing my revenue by service line instead of just putting it all in managed services. I’m allocating my technician and my service labor so I have an accurate reflection of my gross margin on services.”

It’s not all about gross margins, Seaborn said. The average gross margins on services is 49 percent, which to some MSPs may seem low. However, an MSP bragging of 65 percent gross margin on services is likely not allocating labor.

Leadership is also a key value indicator, Seaborn said.

“We see this all the time: MSP owners are incredible,” he said. “They’re jacks of all trades, and they can do it all. But the problem is, when you’re the rainmaker, meaning everything starts and ends with you, that’s not attractive to a buyer. They don’t want to say, ‘Oh, I can’t buy just the business. I need to buy the owner with it.’ Sometimes we see the owner stays on and takes a different role, maybe a CISO, maybe a director, whatever the case is. But you want to have secondary critical leadership: operations managers, help desk managers, something in business development, and not so important, but marketing that can roll into the new organization if you have a marketing system with a team that’s obviously very valuable. And they don’t necessarily have to be internal. You can have a strong group of contractors that can work with assistants or advisors.”

A well-documented sales process is also important, Seaborn said.

“This is your PSA managing and updating agreements, and getting rid of agreements based on handshakes,” he said. “I’ve seen MSPs with $5 million $10 million on their books, with $1 million or $2 million based on handshakes and agreements that haven’t been updated since the early 2020s. So focus on that PSA management enablement, and really work on your billing practices, that you’re collecting payment information, you’re not chasing AR (accounts receivable), you’re passing through credit card fees, all of those things that advance your billing and your revenue cycle.”

Seaborn cited five factors that help create premium value for MSPs:

The opposite of those factors are actually value destroyers, he said:

There are several strategies MSPs can use to improve their value, starting with improving efficiency, Seaborn said.

“Look at your workflows,” he said. “Take the time. I don’t like to say it because I know you guys are busy. I know you guys have so much. You’re working Monday through Sunday a lot of the time. But take an hour a month. Look at reforming processes. Don’t look at it all. Look at billing. Look at how you pay bills. One step at a time, slow and steady, unless you have the resources internally to invest in more areas. That’s where that secondary level of leadership is so important.”

Seaborn’s presentation provided a lot of great information for MSPs, said Matt Yesbeck, co-owner of Yesteck, a Chester, Va.-based MSP as well as its sister company MSPX, which offers a marketplace for MSPs looking to buy or sell their customer contracts.

“He showed that every MSP, large or small, can have a really good understanding of what their business is worth, and more important, what they need to put in place to increase their multiple,” Yesbeck told CRN. “If you’re at least mildly business astute, you’re keeping track of that number, but you don’t necessarily know the things you need to put in place to make that multiple something that’s much more attractive so that when you are ready to exit on your own terms, you can make that decision and know you’re getting the most out of it. It’s about structuring your business and processes to make sure you’re attractive to a larger MSP.”

Yesbeck said his MSP is only about 14 months old, and has not yet considered looking for an exit.

“We’re still ascending,” he said. “But this is all great food for thought, because these are things we have identified that we want to have in place so that when we get to an exit moment, whenever that may be, we have a great sales engine, we have clear financials, we have our SOPs and all these things in place to help us to be more attractive. These are things we are working on as we grow and develop, and use them to bring in more employees to be able to handle those things.”