How to Value an MSP in 2026

How to Value an MSP in 2026

To value an MSP in 2026, start with adjusted earnings, then apply a multiple set by your recurring revenue mix. Shops under $1M in seller's discretionary earnings trade at 3.5x to 6x SDE. Once adjusted EBITDA passes $1M, buyers switch to 6x to 10x EBITDA, and the largest platform-quality providers clear that. The cross-check every acquirer runs is 1.0x to 2.0x annual recurring revenue.

The three-step method: normalize earnings, segment revenue by contract quality, then select the multiple. Most owners get step one right and step two badly wrong. If you want a baseline before reading further, the valuation calculator will give you a range in a few minutes.

Step 1: Normalize Earnings

Add back owner compensation above market rate, personal vehicles and travel, one-time legal or rebranding costs, and any above-market rent paid to yourself. Subtract what a buyer must actually spend: a real salary for the technical lead if that is you, and the deferred hardware or licensing refresh you have been postponing. An MSP owner billing 20 hours a week of tier-3 escalation work is not adding back a salary, they are hiding a $140,000 hiring cost.

Step 2: Segment the Revenue

Split trailing twelve months into contracted MRR, recurring license resale, project work, and hardware pass-through. Buyers value these very differently. Contracted MRR carries the full multiple. License resale at 10% margin carries almost none. Hardware pass-through is usually stripped out entirely, which is why a $4M revenue MSP can be priced as a $2.6M business.

A Worked Example

Take a 22-person MSP in a secondary metro: $3.8M revenue, $2.7M of it contracted MRR across 61 clients, 4% annual logo churn, 54% gross margin on managed services, largest client at 9% of revenue, standardized on one RMM and one PSA. Adjusted EBITDA after paying a real replacement for the owner: $760,000.

At 71% recurring, low churn, and no concentration problem, this shop sits at the top of the SDE band and the bottom of the EBITDA band. A financial buyer models 5.5x to 6.5x, so roughly $4.2M to $4.9M. A regional strategic already serving the same vertical models synergy on overhead removal and comes in at 7x to 8x, or $5.3M to $6.1M.

Now change one variable. Move the largest client to 28% of revenue and the same business draws a 20% concentration discount, plus a larger portion of the price shifted into an earnout tied to that client renewing. Same EBITDA, roughly $1M less at close.

SDE vs EBITDA vs Revenue Multiples

Use SDE when the owner works in the business and earnings are under about $1M. It includes the owner's full compensation, so the multiple looks lower. Use EBITDA when there is a management layer and the owner is replaceable. It excludes owner comp, so the multiple looks higher on a smaller number. Comparing an SDE multiple to an EBITDA multiple is the single most common way owners talk themselves into a wrong number.

ARR multiples are a sanity check, not a method. They are useful because they are hard to manipulate: contracted revenue is either in the agreements or it is not. If your ARR multiple and your earnings multiple imply values more than 25% apart, your margins are the problem, not your revenue.

What Moves the Multiple

• Recurring mix. Above 70% contracted, expect the top of the range. Below 50%, expect 1.5x to 2x less.
• Churn. Under 5% supports a premium. Above 12% and buyers price the erosion in.
• Contract assignability. Agreements without an assignment clause must be re-signed at closing, which gives every client a chance to renegotiate. Buyers hold back price for that risk.
• Tech stack discipline. One RMM, one PSA, one documentation system. Platform acquirers pay for shops they can integrate in 90 days and discount shops that take a year.
• Concentration. Any client above 15% costs you. The math is the same as it is in any industry, covered in the business valuation fundamentals.
• Owner dependency. If clients call your cell phone, a chunk of your value is personal goodwill that does not transfer. See what goodwill is in a business sale.

Seat Economics and Pricing Power

Buyers will rebuild your pricing from the bottom up. Most healthy MSPs bill $110 to $200 per seat per month for a fully managed stack, or $1,200 to $2,500 per server. If you are sitting at $75 a seat on agreements signed in 2021 that you never indexed to inflation, an acquirer sees latent upside and will happily take it after closing rather than pay you for it. Raising prices 8% to 12% across the book twelve months before you go to market, and surviving that renewal cycle with churn intact, is one of the few moves that both grows earnings and proves pricing power. Proven pricing power is what separates a 6x conversation from an 8x conversation.

What This Means for Your Exit

The levers above take 18 to 36 months to move, which is exactly why they are worth starting now. Converting 20 points of revenue from project work to contracted MRR can add 1.5x to your multiple, which on $700K of earnings is roughly $1M of enterprise value for work you were doing anyway at worse terms.

Know your buyer before you build for them. Platform acquirers want standardized stacks and clean documentation. Strategics want your client list in their footprint. Individual buyers on SBA debt want stable cash flow and will pay less but close faster. The differences are laid out in strategic buyer vs financial buyer, and if part of your price is contingent, read what an earnout is in a business sale before you agree to one.

Start with the short version at what a managed service provider is worth, then map the gap between today's number and your target in exit planning. YourExitValue keeps the calculation live as your contract book changes, so you are never guessing when a buyer asks. The MSP owners who get the top of the range decided three years early which number they were building toward.