He views 2025 as a time to reestablish your labor efficiency targets . “ I think 2025 is a great year to challenge your team . We want to continue to improve output with the labor dollars that we ’ re currently spending . That sets you a foundation to be the surviving competitor in what ’ s going to be a pretty brutal marketplace for a few years to come .”
DiJulius , on the other hand , believes the shift is underway to an employer market . With more available applicants , though , he cautions business owners not to treat them as easily replaceable . “ You have to make sure you still offer them good positions with meaning and purpose , which is what they ’ re looking for .”
He also advises MSP owners to be transparent about AI and automation . “ AI will take some jobs , and the worst thing we can do is say it won ’ t take any jobs , but then if we lay off 10 %– 15 % within the next 18 months , no one ’ s going to believe a word we say .”
It ’ s important to communicate with employees that as your MSP grows , you might not have to add more people or replace someone who leaves . “ But that ’ s not a onetime speech or communication . You have to constantly be communicating ,” DiJulius notes . “ We ’ ve got to be helping people learn AI so it can make the job more profitable .”
M & A Outlook
A Shift Toward A Buyer ’ s Market , Fewer Deals , And Shotgun Weddings
MSP mergers and acquisitions continued to slow in 2024 . Paul Cissel , CEO of Growth Caddie , M & A Expert in Residence for TMT , and a senior analyst and facilitator for Service Leadership , says he expected about 800 transactions by year-end , down from a high of 1,200 a few years ago . For 2025 , he expects that number to be even lower .
Cissel notes that there are two different markets when it comes to MSP M & A : private equity ( PE ) firms looking for high-quality companies and “ smaller MSPs that are trying to grow on their own dime or on the dime of the companies that they buy .”
The PE firms are now having to look harder , as many of the larger MSPs have been acquired . “ There ’ s very few $ 5 million EBITDA firms , which is what the PE firms really love ,” Warren says . “ They ’ ll come down to as low as $ 2 million , but there ’ s not even a lot of $ 2 million in EBITDA MSPs available . And so for them , it is about being creative .”
Cissel is seeing a trend of “ shotgun weddings ,” or what he calls “ the triple lindy .” That occurs when an investment banker merges three MSPs to get the critical mass a PE buyer wants .
Still , Cissel says , “ The opportunity is always good for quality companies , and a quality company is a company that consistently makes over 20 % adjusted EBITDA , continually grows at 15 % compound annual growth , and they have over 42 % blended gross margins and 50 % service gross margins . Those companies are always going to be interesting , no matter what size they are .”
Warren agrees : “ High-quality firms are still able to command a premium . Low-percentile firms are going to take a discount .” He also expects a shift to a buyer ’ s market in 2025 . “ That ’ s putting downward pressure on multiples .”
Indeed , Warren says MSPs looking to sell in 2025 should brace themselves for flat multiples compared to years past . However , he adds , “ I really don ’ t think it ’ s going to go down any further . We know , based upon age demographics , it ’ s estimated that 71 % of MSPs are going to change hands in the next five years .” He expects transaction velocity to be high while multiples continue to decline , but not materially .
So if you ’ re thinking of selling your MSP , he says , you have time to increase your growth rate and drive up your valuation “ by putting infrastructure and policies and procedures in place such that it ’ s not dependent on [ you ], the owner .”
Get Big
But Stay Small
Crabtree believes growth is the key to longevity . “ MSPs that are $ 2 million and under live in fear of one or two key customers or employees going away . It ’ s a market that is really pushing people to be $ 5 million and above .”
But it ’ s still a relationship business , DiJulius stresses . “ The number one thing why a client will choose to continue to do business [ with you ] or not is the experience they get , the consistency they get , the relationship they have . So for MSPs , no matter how big they get , they have to stay small .”
Make The Shift
Innovate And Look Ahead
The path forward in 2025 will demand bold moves , adaptive strategies , and a commitment to staying agile , while those who fail to evolve could find themselves left behind in the rapidly shifting marketplace .
Colleen Frye is Executive Editor of MSP Success . A veteran of the B2B publishing industry , she has been covering the channel for the last 18 years , most recently as managing editor of ChannelPro . Her work has been published in a variety of media , including TechTarget sites , InfoSecurity Professional magazine , and Application Development Trends .
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