MSP valuations built on the quality of recurring revenue, not headline turnover.

An MSP business valuation determines what an IT services or managed service provider is worth based on the quality of its recurring revenue — MRR mix, contract tenure, churn and revenue per technician — not headline turnover. Prismi prepares independent, evidence-led valuations of Australian MSPs for sales, private equity offers, restructures, shareholder exits and CGT events, concluding at the most supportable position within a defensible range.

When an MSP or IT services valuation is required

MSP valuations are commissioned at ownership and tax events: a full or partial sale to a consolidator, a shareholder or founder exit, employee equity issues, a restructure under Subdiv 328-G, a related-party transfer where s 116-30 substitutes market value for the actual proceeds, a small business CGT concession claim under Div 152, Division 7A compliance, shareholder disputes and family law property matters. Increasingly the trigger is an unsolicited approach — private equity-backed aggregators are actively consolidating the Australian MSP market, and owners want an independent view before responding to an indicative offer expressed as a multiple of ARR. The specialist point is simple: MSPs are valued on the quality of monthly recurring revenue, not headline turnover. Two MSPs with identical revenue and identical EBITDA can sit at materially different points on the value spectrum depending on contract mix, tenure and churn, and a valuation that does not analyse the revenue book at that level is not supportable.

Why contracted MRR, not turnover, drives the number

A dollar of contracted managed-services revenue is not worth the same as a dollar of project or break-fix revenue, because one recurs under contract and the other must be re-won every year. The valuation therefore starts with a revenue-by-type schedule: managed services under agreement, project and professional services, licensing and hardware resale, and break-fix. Within the contracted book, tenure and terms matter as much as the dollar amount — remaining term, auto-renewal and evergreen clauses, CPI or index escalation, termination-for-convenience rights and assignment provisions on a change of control. A book of month-to-month arrangements that has never been formalised behaves, in a buyer's hands, closer to break-fix than to contracted MRR, and the supportable position reflects that. Where contracts are assignable, multi-year and escalating, the maintainable earnings carry demonstrably lower risk and the capitalisation rate or multiple can be defended at the stronger end of the range.

The metrics a buyer's diligence team will test

Churn is measured two ways and the file needs both: logo churn (clients lost) and revenue churn (dollars lost, net of growth within retained clients). Net revenue retention at or above 100% — seat and device growth inside the existing base outpacing losses — is one of the strongest facts a supportable position can rest on. Pricing durability is tested next: per-seat and per-device rates that have held or escalated through renewal cycles indicate a defensible service proposition; rates that have been discounted to retain clients indicate commoditisation pressure. Revenue per technician is the labour-efficiency proxy — it exposes over-servicing, under-automation and margin risk that headline EBITDA can hide. Vendor concentration completes the picture. Microsoft CSP margin compression is the live example: licensing resale margin is thin, set by the vendor and outside the MSP's control. The valuation separates resale revenue from services revenue, because a book that looks like managed services but is substantially licence pass-through supports a lower multiple than its turnover suggests.

Two buyer markets, two different answers

The Australian MSP market has two distinct buyer pools that price on different bases. PE-backed roll-ups pay ARR-linked multiples for books that clear their thresholds — a predominantly contracted recurring revenue base, assignable agreements, a standardised RMM/PSA stack and management that survives the founder's exit. Trade buyers — competitors, adjacent IT businesses, incoming owner-operators — price a multiple of normalised EBITDA and discount for anything they will have to fix. Market value under the Spencer willing-but-not-anxious principle and IVS 104 is what the realistic pool of buyers would pay, so the first analytical question is which pool the subject business can actually access. Applying aggregator ARR multiples to a sub-scale MSP with 40% recurring revenue is not evidence; it is aspiration. The report identifies the buyer market the evidence supports, applies methodology consistent with how that market prices, and uses the other market as a cross-check — that is what makes the concluded position defensible rather than hopeful.

Lead engineers and the personal goodwill question

In professional practices the personal goodwill question attaches to the named partner. In an MSP it hides one level down, with the lead engineer who holds the admin credentials, knows the undocumented environment quirks and answers the client's 7 am call. If key client relationships and environment knowledge sit with one or two individuals — including a founder acting as chief engineer — part of the goodwill is personal rather than transferable, and the valuation must say so. The evidence that shifts value from personal to enterprise goodwill is procedural: documentation held in the PSA rather than in heads, standardised onboarding and runbooks, ticket distribution across the team, and client contracts with the entity rather than relationships with a person. This split matters most in related-party transfers and CGT engagements, where the transferable enterprise value — not the value assuming the key person stays forever — is the number that must be defended.

What the working file needs

• ·Contract register: remaining tenure, auto-renewal, escalation, termination and assignment clauses
• ·MRR by client by month for the last 24–36 months
• ·Logo and revenue churn analysis, including net revenue retention
• ·Revenue split across managed services, project work, licensing and hardware resale, and break-fix
• ·Vendor agreements and program terms, including Microsoft CSP arrangements and RMM/PSA licensing
• ·Technician headcount, utilisation and revenue per technician
• ·Client concentration schedule and top-ten client tenure
• ·Owner and lead-engineer remuneration for normalisation to market

Which engagement tier fits an MSP valuation

For an indicative position — internal planning, an early-stage shareholder discussion, a first look before responding to an approach — the Essential engagement from $1,495 + GST (10–14 business days) is usually sufficient. Most MSP sale, restructure and CGT engagements sit in the Comprehensive tier from $3,995 + GST (15–25 business days), which supports the revenue-book, churn and contract analysis this industry requires. Where the position is likely to be tested — a substantial Div 152 claim, a shareholder dispute, or a negotiation with a PE acquirer whose diligence team will re-run every number — the Defensible Valuation File from $8,995 + GST (25–35 business days) documents the evidence trail at the depth the scrutiny warrants. Owners weighing a roll-up offer against a trade sale can add the Valuation Range & Scenario Review, which models both buyer markets explicitly. Retrospective dates attract a $495 surcharge per historical date, additional entities are $750 each, and fees are fixed at engagement — never contingent on the outcome.