How IT Services Companies Are Valued
IT services encompasses managed service providers (MSPs), value-added resellers (VARs), IT consulting firms, and cybersecurity service providers. The single most important factor in IT services valuation is the percentage of revenue that comes from recurring managed services contracts (MRR) versus one-time project work and hardware resale. This distinction alone can create a 2-3x spread in valuation multiples.
Managed Services (MRR) vs. Break-Fix and Projects
High-MRR businesses (70%+ recurring) are the most sought-after acquisition targets in IT services. MSPs with strong managed services contracts sell for platform-tier earnings multiples at the platform level. Our data shows median IT services multiples of an earnings multiple in the $5M-$25M bracket, rising to 10.8x for larger deals.
Break-fix and project-based IT companies trade at significant discounts , typically an SDE-multiple range for smaller firms or platform-tier earnings multiples for larger ones. The revenue is unpredictable, margins are lower, and there's no contractual recurring base to provide buyer confidence.
SMB MSPs ($1M-$5M revenue) most commonly sell for an SDE-multiple range to individual buyers or as add-ons to larger MSP platforms. The published benchmark median for MSP acquisitions is an earnings multiple, but that reflects mid-market deals averaging $38.5M in deal size. Under $5M, our data shows platform-tier earnings multiples.
Key Value Drivers for IT Services
Monthly recurring revenue (MRR) percentage is the dominant value driver. Buyers calculate a per-endpoint or per-user MRR figure and project forward. MSPs with $50+ per-endpoint MRR and 80%+ recurring revenue command top multiples. Some buyers literally value MSPs at 24-36x monthly recurring revenue as a quick valuation shortcut.
Client retention and contract terms matter because MRR is only valuable if it persists. Net revenue retention above 95% is strong. Buyers want to see multi-year contracts (not month-to-month), auto-renewal provisions, and 60-90 day termination notice requirements. Month-to-month agreements significantly discount MRR value.
Cybersecurity capabilities are increasingly a differentiator. MSPs that have built MSSP (managed security service provider) offerings, SIEM, SOC, MDR, compliance, command premium multiples because security is the fastest-growing segment of IT services and creates deeper client dependency.
Vendor stack and certifications influence value. MSPs built on best-of-breed PSA/RMM platforms (ConnectWise, Datto, Kaseya) with documented processes are easier to integrate. Microsoft partner designations, SOC 2 compliance, and vendor certifications add measurable value.
What Decreases IT Services Value
Owner-as-sole-engineer is the most common value killer for small MSPs. If the owner is still handling tickets, managing projects, and serving as the primary client relationship, the business is essentially a job, not a company. Buyers need a technical team that operates independently.
Hardware-heavy revenue from reselling PCs, servers, and networking equipment carries low margins (5-15%) and isn't recurring. A revenue mix that's 40%+ hardware will significantly depress multiples compared to a services-focused MSP.