Does anyone have experience with IT Managed Service Providers?

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April 14, 2022

by a searcher from Embry-Riddle Aeronautical University in Austin, TX, USA

Hello everyone,

I am looking for someone with expertise dealing with Managed Service Providers (MSPs). I'm curious to know:
1. What profit margins have you seen?
2. What is the typical EBITDA multiple range MSPs sell for?

Thanks!

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Reply by a searcher
from Durham University in London, UK
Margins depend on how much of the business (and consequently revenue) comes from being a VAR (value added reseller), or managed services. Most of these firms will have started as VARs then built out their managed services practices over time.

For a pure-play VAR expect 5-7% EBITDA margins (no Capex, so this converts to cash), for pure-play managed services expect 20-40% margins depending of how much of the costs have been costed out vs. capitalised into Capex - there's usually a lot of Capex (expect 10-20% EBITDA - Capex margins). One big downside of managed services firms is that they are "expensive to build and expensive to maintain" due to the amount of ongoing internal infrastructure investment - whereas while VARs have thin margins and less recurring revenue, they are cash-generating sales machines.

In the UK lower mid-market (GBP 2-5MM EBITDA), expect 8-10x multiples for firms that are mostly VAR, and 10-13x for mostly managed services. These multiples will go up as the firms get larger; I've seen them reach 20x multiples on megafund PE deals
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Reply by a professional
from Embry in Orlando, FL, USA
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