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Every week, Texas MSP owners in Houston, DFW, Austin, and San Antonio get cold emails from private equity roll-ups and boutique IT brokers promising 6x to 8x EBITDA. Then the owner opens a data room—or hires an “MSP broker” charging an 8%–12% commission—and watches the offer come back at 3.0x with 35% of the price locked in a two-year client-retention earnout.

Why did the multiple collapse? Because in MSP M&A, buyers do not buy top-line revenue. They buy transferable, high-margin Monthly Recurring Revenue (MRR)—and they ruthlessly strip out everything else during Quality of Earnings (QoE).

Three things buyers test in your PSA and contracts within 48 hours

  1. Is your “recurring” revenue actually contracted and assignable? If half of your monthly invoices are recurring block-hour retainers on expired 2021 agreements, or month-to-month handshakes that a client can cancel on 30 days’ notice, a buyer prices that stream like break-fix labor. Even worse, if your Master Services Agreements (MSAs) lack an explicit assignment upon merger or asset sale clause, an asset sale under IRS Form 8594 forces you to ask every client to sign a consent letter before closing.
  2. Does your PSA prove ≥65% agreement gross margin? When a PE diligence team pulls your ConnectWise, Autotask, or HaloPSA agreement profitability report, they want to see fully loaded engineer time logged against each managed client—plus RMM, EDR, SOC/MDR, and backup licensing costs mapped cleanly to each seat. If your L2 and L3 techs dump 30 hours a week into a generic “Internal / Admin” ticket bucket, your agreement gross margin is unverifiable.
  3. Who handles Tier-3 escalations and Quarterly Business Reviews (QBRs)? If the founder is the only person who can troubleshoot a corrupted firewall change at 11:00 p.m. and the only person who sits across from your top 15 clients at renewal time, the buyer is underwriting huge key-person churn risk.

How the valuation divide plays out on a $3.2M Texas IT business

Look at how two Texas IT firms with $3.2 million in revenue and $600K–$700K in owner cash flow get priced at the closing table:

Diligence Metric MSP A: “Hybrid” Break-Fix & Project Shop MSP B: Security-First Contracted MRR Platform
Revenue Mix ($3.2M Total) 38% month-to-month MRR; 37% project/T&M labor; 25% hardware/licensing pass-through. 78% multi-year / evergreen auto-renewing MRR (including MDR/SOC stack); 14% project; 8% hardware.
PSA Agreement Gross Margin Unmeasured per seat; engineers log time loosely; true service gross margin ~46%. 67% verified agreement gross margin in ConnectWise/HaloPSA with mandatory daily time entry.
MSA Assignment & Microsoft NCE Expired agreements; silent on assignment; unbilled NCE seat commitments for departed client staff. Standardized evergreen MSAs with explicit asset/stock sale assignment clause; NCE seats reconciled monthly.
Founder Role & Concentration Founder is lead vCIO and Tier-3 architect; top client is 21% of revenue. Service Manager runs helpdesk + dedicated vCIO/Account Manager; no client exceeds 9% of MRR.
Valuation Multiple & Cash at Close 2.7x SDE (~$1.62M) with 35% tied to a 24-month retention earnout (~$1.05M Day-One Cash). 6.0x Adjusted EBITDA ($4.20M) with 85% cash at close ($3.57M Day-One Cash).

Four operational fixes to run before you hire a broker or sign an LOI

Converting MSP A into MSP B does not require a broker taking 10% of your life’s work. It takes 6 to 18 months of disciplined operator work:

  1. Split your Chart of Accounts into four clean P&L buckets: Separate (a) Contracted Managed Services MRR, (b) Cloud/Security Seat Licensing (Microsoft CSP, SentinelOne, Huntress, Datto), (c) Fixed-Scope / T&M Project Labor, and (d) Hardware/Product Resales—with matching Cost of Goods Sold (COGS) labor and tool costs under each bucket.
  2. Enforce PSA time-entry against client agreements for two consecutive quarters: Require every L1, L2, and L3 technician to log 90%+ of their billable and support hours directly to client service tickets tied to the recurring agreement. Within 90 days, you will see which “noisy” clients are burning 3x their monthly seat fee so you can re-price them before diligence.
  3. Refresh your top 25 client MSAs on renewal: Bundle your cybersecurity stack update (MFA, EDR/MDR, immutable backup) with a modernized MSA that includes evergreen 12-to-36-month auto-renewal and an explicit merger/asset-sale assignment provision.
  4. Define the NWC peg treatment of advance-billed MRR in the LOI: Because MSPs bill monthly recurring services on the 1st of the month, buyers try to treat advance MRR billings as a deferred-revenue liability in the Net Working Capital peg. Read our Working Capital Peg Calculation Guide and Unsolicited Private Equity LOI Checklist before signing exclusivity.

How SweetSpot helps Texas MSP owners prepare for fixed fees (0% commission)

Our founder, Daniel Sweet, spent 27 years in technology—sales, consulting, and full P&L management across Apple, IBM, Compaq, HP, and enterprise VARs—before buying and advising Texas companies. We help Texas MSP owners build a buyer-proof business for published fixed fees and never a broker commission: