Managed service providers, IT consultancies, cybersecurity firms and specialized technology solution providers. Buyers want to know how much of your revenue recurs, how loyal your clients are, and whether the technical knowledge lives in the company or in two or three people. Kingston Investments advises owners of privately held IT services and technology businesses on valuation, buyer identification, negotiations and the sale process, across Ontario from the Greater Toronto Area.
An IT services business is valued on its earnings and on how dependable they are. Contracted recurring revenue, low client churn and a team that doesn’t rely on one or two people are what move the price and the terms.
Monthly managed-service agreements are worth more to a buyer than project work, even from loyal clients.
Services delivered by people are valued mainly on earnings. Software products follow different economics.
Documentation, shared access and a second layer of engineers reduce the key-person risk buyers worry about most.
Buyers review your own security, your clients’ environments and any past incidents, alongside the financials.
“Technology business” covers very different models. Buyers value each one differently, so the first step is being clear about which one you run.
Most firms are a mix. An MSP that also sells projects and licences, or a consultancy with a small software product, will be valued on the mix. Separating revenue by type, with margins for each, is one of the most useful things to prepare.
A simplified, hypothetical year for an MSP. Buyers don’t just look at the closing monthly recurring revenue (MRR); they look at what happened in between.
These are the points that most often move the price, the structure of the offer and the length of your transition.
Written managed-service agreements with defined terms, notice periods and price escalation are worth more than month-to-month arrangements. Buyers will read assignment and change-of-control clauses closely, especially in an asset sale.
Buyers like to see a contract for every recurring client, with terms summarized in one schedule.
If one or two clients make up a large share of recurring revenue, the business is exposed to their next renewal. Buyers look at concentration by revenue and by gross profit.
Buyers like to see revenue and tenure by client for at least three years.
If the owner or one senior engineer holds the passwords, the architecture knowledge and the client relationships, a buyer is buying a risk. Documented environments, shared credentials management and cross-trained staff reduce it.
Buyers like to see client documentation, runbooks and a service manager clients already know.
Certified technicians and engineers are hard to hire. Buyers look at tenure, turnover, pay compared with the market and whether key people have reasons to stay after closing.
Buyers like to see stable staffing and signed employment and confidentiality agreements.
Resold licences, distributor and vendor agreements, and the tools you run the business on, such as remote monitoring and ticketing systems, all need to transfer or be replaced. Licence counts should reconcile with what clients are billed.
Buyers like to see a vendor list with terms, and licence counts reconciled to billing.
Scripts, integrations, internal tools or software you developed are only an asset if the company clearly owns them. Work done by contractors or early employees without written assignment of rights is a common gap.
Buyers like to see signed IP assignments from employees and contractors.
An IT provider often holds privileged access to client systems. Buyers review your own controls, client contract obligations, insurance and incident history. Canada’s private-sector privacy law requires organizations to record every breach involving personal information and report those that create a real risk of significant harm.
Buyers like to see documented security practices, insurance and a clean, well-recorded incident history.
Owner pay is reset to what a service manager or technical lead would cost, and personal or one-time costs are added back. Contractors used in place of staff, unbilled project overruns and pre-paid annual contracts all need careful treatment.
Buyers like to see adjusted EBITDA with support for each adjustment.
Where growth is part of the story, buyers ask what it costs to win a client and how long they stay. A steady pipeline that doesn’t depend on the owner’s personal network supports value.
Buyers like to see where new clients came from and how long they took to win.
Buyer interest in recurring IT services is broad, but each type of buyer weighs the same business differently.
Adding clients, a region or a capability such as security or cloud. They may pay for clients they can serve with their existing team, and will look hard at which tools and contracts carry over.
Building a group of IT services firms. They want recurring revenue, reliable reporting and managers who stay, and may ask the owner to keep a minority stake.
Telecom, software or equipment companies adding services for their own customers. Interest depends on fit with what they already sell.
Experienced technology managers looking to own a firm, usually with bank financing and often with seller financing or a transition role for the owner.
Technology buyers usually send both accountants and technical reviewers. IT firms that can answer quickly look well run, and buyers trust the rest of their numbers more.
What to expect in due diligenceCurious what your IT business could be worth?
Answer a few questions about your business and its finances, and an advisor will review them and contact you to discuss a preliminary valuation. You don’t need to be ready to sell.
In many IT firms the owner is also the senior architect, the main salesperson and the escalation point. Buyers will plan around that.
Expect a buyer to ask you to stay for a transition, introducing key clients, handing over technical knowledge and supporting the team through any change in tools or processes. Transitions of several months to a year or more are common, and part of the price may be tied to client retention or results after closing.
The more of your role is already shared, with a service manager clients know, documented environments and a second engineer on every major account, the shorter and simpler that transition can be, and the more of the price a buyer is comfortable paying at closing.
We present the business the way an informed buyer will analyse it, and keep the process confidential from clients and staff until you decide otherwise.
Sell-side advisory Our full process, step by stepWe separate recurring, project and licence revenue, analyse MRR and churn by client, and normalize earnings the way a buyer will.
We review client agreements, vendor and licensing terms and IP ownership, so gaps are fixed or explained before a buyer finds them.
Buyers see an anonymous profile and sign a non-disclosure agreement before learning more. Competitors receive client names and pricing last.
We help you compare offers on cash at closing, retention-based or earnout payments, rollover equity and your transition role.
We coordinate financial and technical diligence and the work of your accountant and lawyer through to closing and the client announcement.
A completed transaction from Kingston’s portfolio. Businesses and parties are not named, and the value shown is the published value.
I was impressed by the depth and quality of the business presentation the Kingston team prepared. From my experience as a private equity investor, few advisors invest this level of time in producing materials that are both detailed and informative.
Short answers to the questions we hear most often. Every business is different, so we’re happy to talk through yours.
All FAQsMost MSPs and IT services firms in our size range are valued on adjusted EBITDA, weighed against the quality of the revenue behind it: how much is contracted and recurring, how long clients stay, how concentrated the client base is and how dependent the business is on a few technical people. A realistic answer is a range. To find out what yours could be worth, request a business valuation: an advisor reviews your figures and contacts you to discuss them.
Usually not. Software companies are often discussed in terms of recurring revenue because the cost of serving one more customer is low. An MSP delivers services with people, so its margins look more like a services business and buyers focus on earnings. Recurring managed-service contracts still make an MSP more valuable than a project-based IT firm, but the two models are valued differently.
Client contracts and their terms, monthly recurring revenue and churn by client, licence and vendor agreements, who owns any software or intellectual property, the security of your own systems and your clients’ environments, any past security incidents, employee and contractor agreements, and normalized earnings. Many buyers bring in a technical reviewer as well as accountants.
It depends on the contracts. In a share sale the contracting company doesn’t change, though some agreements still require consent on a change of control. In an asset sale, contracts usually need to be assigned, which can require each client’s agreement. Month-to-month arrangements carry more risk than written agreements with a defined term.
Most buyers want your engineers and technicians to stay, because they hold client knowledge and certifications. In a share sale employment generally continues with the company. Buyers often ask for key people to be committed before closing, sometimes with retention bonuses, so it helps to plan when and how they will be told.
No, but it must be disclosed and explained. Buyers will want to know what happened, how it was handled, whether it was reported where required, and what has changed since. Under Canada’s private-sector privacy law, organizations must keep a record of every breach of security safeguards involving personal information, so the records should already exist.
It depends on how much of the client relationships, sales and technical leadership sit with you. Transitions of several months to a year or more are common, and part of the price may be tied to retention or results. Building a service manager or technical lead into key relationships before a sale usually shortens it.
A business broker typically lists a business and responds to the buyers who come forward, which suits many smaller, simpler sales. An M&A advisor, sometimes called a business sale advisor, prepares the business for a buyer’s scrutiny, normalizes the financial statements, approaches suitable buyers confidentially, negotiates price and terms, and manages due diligence through to closing. For an MSP or IT firm with recurring contracts and a technical team, presenting the revenue quality properly and reaching strategic and investor buyers confidentially usually needs an advisor.
No. Many owners talk to us a year or two ahead, which is time to move clients onto written agreements, reduce reliance on a few people, tidy licensing and document systems. These are often the changes that matter most to buyers.
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Buyers pay for what a business earns after the owner steps back. Here’s how to see where your business depends on you, and what to do about it.
After you accept an offer, the buyer checks everything they’ve been told. Here’s what they look at, how it runs and how to keep the deal on track.
Confidential conversation
Start with a confidential conversation about your contracts, your clients and your team. You don’t need to be ready to sell, and there’s no obligation.
