How IT Services Businesses Are Valued: Understanding the Multiple Range

IT services firms—whether they focus on managed services, software implementation, cloud migration, or helpdesk support—can be highly attractive to buyers. They offer sticky revenue, scalable delivery, and often low capital intensity. But not all are created equal when it comes to valuation.

Let’s unpack the multiple range and the curve behind it.

📊 Typical EBITDA Multiple Range: 3.0x – 7.0x

This is the spectrum where most private IT services businesses transact, based on EBITDA (earnings before interest, tax, depreciation and amortisation), on a debt-free, cash-free basis.

Now let’s bring that to life with a bell curve:

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2.0x |–|–––|––––––––––––––––––––––––––|–––––|–| 8.0x+

^ ^ ^ ^ ^

Low Core Strategic Peak Outlier

Value Band or Platform Plays

3.0x 4.0x–5.5x 6.0x–7.0x

3.0x–4.0x: For smaller firms, owner-heavy operations, lumpy revenue, or weak IP.

4.5x–5.5x: The middle of the bell curve—solid recurring revenue, 10–30 staff, good systems, and limited client concentration.

6.0x–7.0x+: Reserved for strategic or bolt-on deals where the buyer sees synergy, scale, or unique capability. These multiples imply the buyer is accepting an ROI of just 14–17%.

🎯 What Pushes a Valuation Up?

Recurring Revenue: Managed service providers (MSPs) with >60% recurring revenue get rewarded. Buyers love predictability.

Contracted Clients: Multi-year, auto-renewing service contracts are gold.

Depth of Team: If the owner isn’t “on the tools,” and there’s technical leadership in place, that reduces buyer risk.

Niche or Industry Focus: Specialists in, say, healthcare IT or legal platforms often achieve a premium—they speak the client’s language and have tailored solutions.

M&A Suitability: If your client base, tech stack, or geography plugs cleanly into a bigger player’s footprint, you can punch above your weight.

🚩 What Holds Value Back?

Overreliance on Key People: If the founder is the rainmaker and the architect, that’s a big risk. Buyers aren’t buying talent they can’t keep.

Project Revenue Model: Firms reliant on one-off implementation work, without a healthy annuity stream, will land in the lower band.

Client Concentration: Anything over 20% from a single client is flagged, especially with no long-term contract in place.

Messy Financials or Addbacks: IT firms often have complex billing, overlapping revenue recognition, and undercooked accounting. If buyers can’t understand or trust the earnings, they won’t pay up.

💸 Seller Tips to Support a Higher Multiple

Separate the Owner from Delivery. Train up a general manager or senior tech lead.

Lock in Client Contracts. Multi-year agreements help drive up enterprise value.

Tighten Financial Reporting. Clean up the P&L and confirm your addbacks early.

Pitch Your IP. Even if it’s internal tooling or automation, document what’s proprietary and how it adds value.

Final Thought

The IT services sector can command strong multiples—but only when the fundamentals are right. If you’re in that 4.0x–5.5x zone, you're in good company. Pushing above that takes something extra: real strategic value, rock-solid retention, and a clear growth story.