#133 - Selling Your MSP - Contracts Change Terms, Not Price | FROM THE TRENCHES

The stereotypical situation is I'll hear an MSP seller will say like, hey, I talked to a colleague at an industry event and they got nine times.

Okay, well, yeah, nine times adjusted EBITDA is possible if you're like, best of breed MSP that's fairly large.

But if you're kind of a standard MSP with the margins are kind of normal, that's not going to happen for you.

That's way above the expectation.

So it always makes me wonder, who are these people who are selling their business for way over market value? And how do I get in touch with these people and the buyers? I would like to work with those people.

But I think there's a little bit of BSing that happens in these events sometimes too, is my guess.

So, Devin, here's the other thing that I hear all the time, and I hear it, but I don't know how much people mean by it.

I hear this stupid thing, and I think it's stupid, but you might correct me.

People start talking about in MSPs the valuation and multiples of their recurring revenue.

I heard that I get 20 times my monthly MRR, or I get, you know, 0.25 times my product revenue, and they apply all these things that sound like rules, they sound more descriptive than prescriptive to me.

Okay, observationally, that may have been true, but is that really how the valuation expert or the buyer actually valued it? So when I hear multiples of anything other than EBITDA, I get a little weirded out.

Tell me the reality of valuations on those axes.

Sure, and I think you're on the right track here.

Adjusted EBITDA is the main multiple that matters.

At the end of the day, that's what we use when we're sizing up an MSP and what we think would be worth on the market.

But we also recognize that each individual buyer has their own perspective.

So, you know, there's some other metrics that we look at more as a gut check sort of a metric.

You know, the one that is probably the most commonly used is the multiple of a total rate.

So for a lot of the MSPs that we work with, that multiple usually lands around one to one and a half times.

But it's not something that we use to firm up the multiple.

It's something that we use as kind of a gut check sort of a metric.

And then for when it comes to the recurring revenue piece, we don't see that so often baked into a formula.

But if the MSP does not have, let's say, more than 60 or 70% of recurring revenue, it's going to take a little bit of a notch off what they can expect in terms of their valuation.

So we do factor it in, but it's not something that we know we have a formula for.

But I'm sure there are buyers out there who do.