Know the multiples for IT Industry -- cloud services?

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October 26, 2022

by a searcher from Tulane University - A. B. Freeman School of Business in Brooklyn, NY, USA

I am looking for information on the Information Technology industry (specifically Managed Services Provider). BVR does not have this industry listed, perhaps not included in our subscription? What are other methods are being used? What is the market paying for companies in this industry?

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Reply by a searcher
from Rensselaer Polytechnic Institute in Durham, NC, USA
First, it depends *a lot* on the specific capabilities. Pure-play MSP (eg; 100% recurring revenue), MSP that also does one-time/professional services, or comprehensive services provider/VAR with resale/PS/MS components. Second, will also depend on the specific areas of tech. Cybersecurity? Collaboration & Customer Experience? Networking? Mixture?

There are a whole lot of large, strategic buyers in the space - I was one in a previous life and we were typically paying 8-12x EBITDA for IT Service Providers with a blended book of business, and considerably higher for pure-play MSP's. Admittedly, that was for transactions between ~$5m-$50m EBITDA.

This is a really hard space to be in if you're sub-scale. Unless there is some extremely differentiated capability, niche specialization, or deep vertical expertise, the MSP business is increasingly a commodity one with significant margin compression occuring.
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Reply by a searcher
from Northwestern University in Toronto, ON, Canada
^redacted‌ - Agree with ^redacted‌. While the BVR numbers can give you a relative idea across industries, ones like the MSP world will have multiples that wildly differ across types of MSPs, EBITDA ranges, growth, and profitability. For example, 5-6x for a $1MM EBITDA at 5-10% margin could be in the 4-6x range. However, those multiples are getting pushed up with PE coming down market and strategics coming into play. But don't let them discourage you. Many will likely pull out for their own internal reasons.‌
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