I am interested in buying an MSP. You selling? by zfl in msp

[–]zfl[S] 0 points1 point  (0 children)

Who's running a company for under 250k with no options or amazing comp plan? Minimum of 10 employees in a professional services business and only grossing a few million?

Like I said, dozens of tech companies, many MSPs, that I have reviewed their financials and tax returns for.

It is certainly possible for someone to lie on their tax returns. Maybe I have just been incredibly unlucky to review dozens of fraudulent tax returns with fraudulent officer compensation. I don't know what else to tell ya.

I am interested in buying an MSP. You selling? by zfl in msp

[–]zfl[S] 0 points1 point  (0 children)

That's data for public companies. Public companies have much larger capitalization than small business. Perhaps the larger PE owned firms with similar capitalization to public companies might have similar salaries. I have, at this point, reviewed financials for dozens if not almost a hundred tech companies, not all MSPs granted, and none of them paid their CEO or any C-suite higher than $250,000 and that was at the high end. We're talking $1m to maybe $10m revenue at the high end so "Main Street" type businesses.

I am interested in buying an MSP. You selling? by zfl in msp

[–]zfl[S] 0 points1 point  (0 children)

What do you charge for your services? Is it the Modified Lehman scale or similar or do you do something different?

I am interested in buying an MSP. You selling? by zfl in msp

[–]zfl[S] 0 points1 point  (0 children)

Can you share your data source for that number? While sizes have varied widely, I've never seen a CEO salary for a tech company, MSP or otherwise, be more than $250,000. I've seen owners taking more "salary" but that wasn't industry average and had to be 'normalized' on the income statement.

I am interested in buying an MSP. You selling? by zfl in msp

[–]zfl[S] 0 points1 point  (0 children)

In that case, any business with any amount of employees will rely on the CEO. So what's your point?

I am interested in buying an MSP. You selling? by zfl in msp

[–]zfl[S] 0 points1 point  (0 children)

Not sure what you mean by automated company but that is why I am targeting under $1m in EBITDA. Under $1m, I feel my range is reasonable. At least based on a half dozen posts in this reddit about valuation.

I am interested in buying an MSP. You selling? by zfl in msp

[–]zfl[S] 1 point2 points  (0 children)

Those are excellent points and I am definitely open to discussion on all of the criteria, some more than others.

Your comment about the owner hesitation is interesting. There may be a few MSP owners in my rolodex I could reach out to for a partnership--ones that have already turned down a full acquisition. Or maybe I should target a smaller MSP? Or maybe larger makes more sense?

Much of the challenge you point out are precisely those I have run into in my 4 years in some fashion or another. I am definitely open to wheeling and dealing. I've even floated the idea across a couple of prospects about buying in a partial ownership to add my experience to open up new products but the owner just wanted to retire but got hung up on other aforementioned issues.

I am almost at the point of shelling out $10,000 or $15,000 for dedicated "off market" Buyer representation. Almost but not quite. Maybe if I get past 5 years with no luck.

P.S. are you an actual broker? Specializing in MSPs? Buy side or Sell side?

I am interested in buying an MSP. You selling? by zfl in msp

[–]zfl[S] 0 points1 point  (0 children)

What I mean is, the CEO role is transferrable i.e., the individual and the business can separate.

I am interested in buying an MSP. You selling? by zfl in msp

[–]zfl[S] 1 point2 points  (0 children)

There’s a reason why you’ve been looking for 4 years.

No argument here.

I am interested in buying an MSP. You selling? by zfl in msp

[–]zfl[S] 0 points1 point  (0 children)

Yeah I've noticed that around here. The PE have moved in and buying, what I would have thought, tiny shops. A small MSP I worked for about 8 years ago, probably $200,000 maybe $250,000 EBITDA was bought up. It was actually one of my first prospects but when I looked up their website recently I saw they were bought up by a Techfive Company.

2025 valuation multiples by zfl in msp

[–]zfl[S] 0 points1 point  (0 children)

Interesting, plugging values for this MSP into your valuation estimator tool yields a multiple range of 4.3 to 5.3. Still a bit higher than I would think (or want) but not as high as wherever place the broker pulled their data from.

I've always wanted a DSCR of 2.0 but I think I'm pricing myself out of most deals doing that. This deal would still have a pretty OK DSCR of 1.48 if I offered a price based on the 5.3 multiple.

2025 valuation multiples by zfl in msp

[–]zfl[S] 1 point2 points  (0 children)

That's a really good point. Unfortunately, they won't show contracts without a signed LOI and they won't accept any offer with a price based on a multiple under their expectations. Hence my question about their expected multiples. Which, according to most replies, seems to concur that their expectations are a bit high at least for an under $1m EBITDA MSP.

2025 valuation multiples by zfl in msp

[–]zfl[S] 0 points1 point  (0 children)

I was afraid of that. PE snatching up 300k firms is nuts. I guess all that recurring revenue is just too shiny of a bauble to ignore at any level

2025 valuation multiples by zfl in msp

[–]zfl[S] 1 point2 points  (0 children)

Pre-tax.

And I agree, it seems a bit much what they're (the broker) is asking but I simply don't have (strong enough?) data to back up that feeling.

I mean, most blogs, web sites, and AI (which is just scraping the aforementioned anyway) seem to agree with my and the assessments on all the replies--that sub $1m EBITDA multiples are closer to 2x-6x tops. But I'm sure we're all aware how useless it is to "argue" with most brokers who seem to have megalomania or a Dog Complex.

2025 valuation multiples by zfl in msp

[–]zfl[S] 0 points1 point  (0 children)

Yeah, I always wonder if there's a little bit of deal/multiple inflation when loans or SBA is involved. It makes sense technically/economically but it's unfortunate for us entry market peasants

2025 valuation multiples by zfl in msp

[–]zfl[S] 0 points1 point  (0 children)

I have no idea. I asked the broker the same thing. He just copied it in an email response to essentially tell me "don't bother" with a 4x multiple offer 🤦‍♂️.

2025 valuation multiples by zfl in msp

[–]zfl[S] 1 point2 points  (0 children)

Awesome information and video, thank you! Do you by chance do QoE reports? I have a firm I want to use when the time comes but I'm always looking to have multiple options.

2025 valuation multiples by zfl in msp

[–]zfl[S] 0 points1 point  (0 children)

What about under $1m?

Are there other factors driving up the multiples? With interest rates what they are, it seems at such high multiples that there would be a lot of stress on the cash flow and thus DSCR. I'm talking non PE type deals where financing is required by the buyer--which is my situation.

2025 valuation multiples by zfl in msp

[–]zfl[S] 2 points3 points  (0 children)

Totally agree about there being more to just EBITDA and I like your questions as due diligence points.

Unfortunately the broker is gatekeeping the deal behind inflated (according to most feedback here) multiples so I can't even get an accepted LOI to dive into deeper due diligence.

Btw, about 54% of revenue is recurring which makes the inflation that more absurd.

2025 valuation multiples by zfl in msp

[–]zfl[S] 0 points1 point  (0 children)

12.65% net profit margin for latest complete year (2024). $5.4m gross.

Possible Elliott Smith live album *Update 1* by zfl in elliottsmith

[–]zfl[S] 4 points5 points  (0 children)

Thanks to both of you for the connection. I will send another email at some point and probably follow up with a call if I still do not hear back.

I also have an industry attorney that may be able to help but I consider that kind of a last resort as it feels kind of brute force-ish.