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Separating The Noise From The Opportunity 

There is so much buzz right now around M&A in the MSP industry, to the point where the noise is almost becoming overwhelming. One of the problems that MSP Owners now face is that while there is clear demand to acquire their company, it is not always obvious why this demand exists. Different types of acquirers have very different motivating factors and they are all converging on the industry at once in an attempt to make a deal. For MSPs looking to exit, finding any buyer has now become the easy part. Finding the right buyer amongst all of this noise is the real challenge.

To accomplish this, you must first understand all of the different types of acquirers that are actively participating in the market right now and what they value most. By aligning their motivations with your own, it becomes clearer as to what acquirer types may offer the best fit for your particular situation. This ultimately will allow you to parse out the opportunity from the noise and focus on what matters, which is maximizing your own outcome over the short and long term. 

Since my knowledge in this area only goes so deep, I leaned on my friend Hannah Paige, Director of Investments at Worklyn Partners to help me fill in the blanks. We sat down to review each acquirer type and identified what motivates their behaviors, as well as the situations where they are typically the best fit for an MSP looking to exit. 

The State of MSP & Cyber | 2024 IT Industry Report

Sponsored by Worklyn Partners & Zest 

The Motivations of MSP Acquirer Types 

Private Equity Firms

Private equity firms are attracted to MSPs with consistent revenue streams and predictable cash flows. They typically leverage these businesses with debt, so a stable EBITDA is essential for managing interest payments and maintaining covenants. As Paige explains, “PE buyers care primarily about the financials. They look for recurring revenue, low customer concentration, consistent EBITDA margins, and strong retention. For firms using the buy-and-build model, having a capable management team is also critical to help grow the business.”

For clarity, a ‘buy-and-build’ strategy focuses on acquiring a solid platform company and then expanding it through additional acquisitions. “The market is fragmented, and MSPs are ideal for bolt-ons,” adds Paige. “Industry expertise is secondary in this scenario—it’s all about the financial play. But if there’s a specific vertical, like healthcare, specialization can add to the valuation.” However, not all MSPs are ideal candidates for private equity. Paige warns, “If your margins aren’t great or your business is stretched too thin, private equity might not be your best option. You’re better off looking at a search fund or a larger MSP competitor that’s more comfortable with operational risk.”

Venture Capitalists

Venture capitalists are drawn to high-growth potential, often favoring companies with proprietary technology or SaaS models integrated into their service offerings. “For a traditional MSP to attract VC interest, they would need to have built proprietary technology or intellectual property that enhances their service offering. If the MSP can develop something unique and scalable—like software integrated with their services—it opens up opportunities for rapid growth, which is what VCs are looking for.” says Paige.

However, VCs are not just looking for growth—they need differentiation. “You can’t just slap a logo on someone else’s product and expect VC interest,” Paige points out. “They want proprietary tools or dashboards that offer unique value.” Unlike private equity, venture capitalists typically take minority stakes. “So, if you’re an MSP founder looking to maintain control while accelerating growth, a VC investment can be appealing. But you have to be committed to staying on and scaling the business. VCs aren’t looking for a clean exit—they’re investing in the long-term potential of the company and expect founders to stick around and drive that growth.”

Search Funds

Search funds are well-suited for MSPs that may have operational challenges but still offer stable cash flows. These buyers are often recent MBA graduates looking to take over and grow a business through hands-on management. As Paige explains, “Search funds aren’t just betting on the business—they’re betting on themselves as operators. The plan is to come in, take over, and turn the business around. They’re not just providing capital; they’re stepping into leadership roles, which makes them more hands-on.”

Unlike private equity, search funds are more willing to take on businesses that need some work. “They’re comfortable acquiring what I call ‘hairier’ MSPs—ones that need improvements but have potential. This flexibility makes search funds a better option for owners seeking a clean exit from a business that may not have the strongest financials.” Search funds typically target stable industries (like IT services) with plenty of acquisition opportunities. “It’s all about stepping in, making improvements, and growing the business over time,” adds Paige.

The State of MSP & Cyber | 2024 IT Industry Report

Sponsored by Worklyn Partners & Zest 

National Competitors

National competitors look to acquire MSPs that help them expand into new regions. Their primary focus is on widening their geographic footprint, in some cases even to support their own existing customer base. “If they want to be truly national, they’re looking for MSPs in regions where they don’t already have a presence,” says Paige. “Their goal is to fill in those geographic gaps.”

Talent retention is also key in these deals. “National buyers prioritize MSPs with strong local reputations and solid technical teams,” Paige notes. “Having a trusted team on the ground helps ensure a smooth transition. Ultimately, these buyers are less concerned with having a dense market share in one area and more interested in ‘wide and thin’ coverage. The idea is to have a little bit of reach everywhere rather than going deep into a single region.”

Local Competitors

Local competitors acquire MSPs to consolidate their market share within a specific service area and reduce operational redundancies. Often, these deals result in staff reductions, especially on the side of the acquired company. “Many roles become redundant because they already have employees in place,” Paige explains. “These deals aren’t just about growth—they’re about creating those operational efficiencies while adding revenue at the same time.”

A local competitor may be willing to pay more for an acquisition because this process of eliminating redundant employees adds back to the EBITDA margin. “In these cases, the buyer values the company based on its adjusted, higher EBITDA, which gives you more room to fetch a better price. They’re willing to pay more because those efficiencies will translate to higher margins,” says Paige. However, this approach can impact employee retention. “If you want your employees to stay with the new company, a local competitor may not be the best fit,” Paige warns. “But if maximizing exit value is your goal, a local buyer might offer the best price.”

Strategic Non-Competitors

Strategic non-competitors—such as cybersecurity firms or managed print companies—acquire MSPs to enhance their offerings and cross-sell services. “For example, a SOC provider might buy an MSP so they can push their security offerings to the MSP’s existing customers, accelerating growth by selling to a captive audience instead of acquiring new customers from scratch,” explains Paige.

These acquisitions also provide financial stability. “Recurring revenue from MSPs adds predictability to their financial profile, making the combined business more appealing for future investors,” says Paige. However, these deals tend to be opportunistic and harder to predict. “A strategic buyer is typically reworking their business model to integrate managed services, so the right opportunity has to align with their evolving strategy. These acquisitions are rare but can result in highly valuable synergies when the fit is right.”

High-Net-Worth Individuals

High-net-worth individuals (HNWIs) often acquire MSPs for personal reasons, financial or otherwise. “Sometimes, former MSP owners sell their businesses, think they want to retire, and then realize they miss the industry. I’ve seen cases where someone who exited decides to buy another MSP—maybe from a friend who’s ready to retire—just to get back into the game. They leverage their experience to run the business again, but with a fresh perspective.”

In other cases, these individuals buy MSPs to manage personal IT needs. “I’ve seen people with hundreds of millions in wealth acquire small MSPs to handle their cybersecurity or other specific requirements,” Paige notes. “HNWIs usually source deals through their immediate or extended networks. It’s not like there’s a club where they hunt for MSPs—it’s more organic. A friend or former colleague might need capital to grow, or they know someone looking to exit, and the high-net-worth individual steps in to buy the business and provide that financial support,” explains Paige.

The State of MSP & Cyber | 2024 IT Industry Report

Sponsored by Worklyn Partners & Zest 

Conclusion 

Ultimately, choosing the right acquirer is essential to achieving your desired outcome. While this may be more clear at a time with far less M&A activity, it can be difficult in today’s climate. To summarize: 

  • Private Equity wants financial stability and returns.
  • Venture Capitalists want fast growth and IP.
  • Search Funds want operational potential.
  • National Competitors want reach and expansion. 
  • Local Competitors want market-share and efficiency.
  • Non-Competitors want cross-sell synergies.
  • HNWIs want to fulfill personal needs and ambitions. 

As Paige wisely states, “The right buyer is the one that aligns with your business and personal priorities, whether that’s maximizing valuation, ensuring employee retention, or making a smooth exit.”

SPONSORED BY ZEST