The State of MSP M&A: So Many Buyers and So Few Quality MSPs for Sale

Looking for a quality MSP to buy? Get in line. After a few years of frenzied M&As in the managed services market, deals slowed in 2023 and 2024. Sure, high interest rates, high inflation and other macroeconomic trends contributed to that slowdown. But if you ask anyone who watches the market closely, they’ll tell you the biggest problem is pipeline. There aren’t enough quality MSPs of a certain size.

At Kaseya DattoCon’s M&A Summit ahead of the actual DattoCon event, an audience poll by show of hands revealed that most of the audience of MSPs were looking to buy other MSPs. Only a few were looking to sell.

So what makes an MSP a quality target for buyers? [Check out Cogent Growth Partners’ perspective on what makes a quality MSP here.]

At Kaseya DattoCon’s M&A event, Evergreen Services VP Sydney Hockett provided some insights into what her company – a buy-and-hold-focused PE firm focused on MSPs – looks for in target acquisitions. Evergreen has acquired about 80 MSPs.

What Evergreen Looks for in Target MSPs

Here’s what the company looks for in a target MSP.

$500k-plus in trailing 12-month (TTM) EBITDA, factoring in management compensation

50%-plus recurring revenue, and 80%-plus of revenue from managed customers

85% customer retention and 90%-plus net revenue retention

Double-digit recurring revenue growth for “platform” investments and at least single-digit for tuck-ins

Total revenue must be less than 25% from top customers; less than 50% from top five customers

SaaS Alerts CEO Jim Lippie, who serves as an advisor on a PE advisory board and who sold his successful MSP Thrive to Staples, provided some insights into what causes acquisitions to fail.

Why Acquisitions Fail

First, acquisitions fail when there’s a lack of alignment between the buyer and the seller. Here are some examples of that:

Growth plan – the buyer and seller should agree on growth through more deals versus organic growth

Investment plan - Where is the money for the deal coming from? Bank loan? Home mortgage? Do you both agree to sacrifice today’s EBITDA for growth?

Roles going forward – “This is a big one.” When companies come together, there are egos involved. There could be multiple “alphas” involved. Who fills what role?

Tools and vendors philosophy - Some people will want to tinker with the stack. Others will want to pick a tool or toolset that aligns with financial goals rather than best-of-breed. When two companies come together, they must align along one of these strategies.

When to exit – Age plays a role, but if the two parties are of different ages, how will these individuals decide what action to take?

Relationship with money – “Your relationship with work and money changes after you get that big check. Be real with yourself,” Lippie said. He added that many of these issues can be addressed in an operational agreement.

The second reason acquisitions fail is due to cultural differences

Are you a sales-focused organization or an engineering-focused organization – there’s always friction between the two.

How and when to hire

Remote work versus in-office work

Customer service philosophy

Recognition of employees

The third reason acquisitions fail is because the business is not stable enough for an acquisition. Here’s where you need to be before you consider being part of an M&A.

Have $5 million-plus of annual recurring revenue. If you don’t have this, you are too small to do such a deal with stability

Have 20% EBITDA

Have a margin of error – acquisitions require this.

(One of the) Most Important Qualities of the Best MSPs

ChannelE2E is hearing one thing repeatedly when it comes to identifying quality MSPs as acquisition targets: All these companies have strong organic growth. They are retaining customers at a high rate and they are adding new logos.