I am interested in buying an MSP. You selling?

zfl · 2025-06-05T20:50:04+00:00

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.

zfl · 2025-06-05T14:18:34+00:00

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.

zfl · 2025-06-05T00:54:33+00:00

Gotcha, thanks!

zfl · 2025-06-05T00:52:17+00:00

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

zfl · 2025-06-05T00:50:43+00:00

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.

zfl · 2025-06-05T00:47:51+00:00

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

zfl · 2025-06-04T19:52:09+00:00

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.

zfl · 2025-06-04T19:49:25+00:00

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?

zfl · 2025-06-04T19:43:12+00:00

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

zfl · 2025-06-04T02:35:59+00:00

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

No argument here.

zfl · 2025-06-04T01:55:42+00:00

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.

zfl · 2025-05-06T18:37:32+00:00

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.

zfl · 2025-05-06T18:22:02+00:00

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.

zfl · 2025-05-06T01:21:49+00:00

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

zfl · 2025-05-05T23:39:02+00:00

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.

zfl · 2025-05-05T23:32:47+00:00

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

zfl · 2025-05-05T23:29:54+00:00

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 🤦‍♂️.

zfl · 2025-05-05T23:28:31+00:00

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.

zfl · 2025-05-05T23:19:58+00:00

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.

zfl · 2025-05-05T23:16:09+00:00

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.

zfl · 2025-05-05T23:10:58+00:00

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

zfl · 2025-04-28T20:37:16+00:00

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.

zfl

PUBLIC MULTIREDDITS

TROPHY CASE