Sell, Hold, Or Grow: Navigating The IT Services Market In 2025

With the conclusion of the election cycle and significant initiatives like the Stargate AI Infrastructure Project underway, the 2025 IT services M&A landscape is rapidly evolving. Rising cybersecurity threats and the increasing reliance on IT across industries such as healthcare, retail, and manufacturing highlight the critical role of IT services companies—particularly Managed Services Providers and Managed Security Services Providers—in driving business continuity and innovation.

For entrepreneurs, executives, and investors, the question now arises as much of the recent uncertainty fades behind us: Is 2025 the right year to sell, hold, or strategically grow? To make that decision, business owners must carefully evaluate market dynamics, valuation trends, and insights from industry leaders to chart the best path forward.

Historical Context: Cycles Of Boom And Bust

The IT services industry has experienced distinct cycles of growth and contraction, shaped by economic, technological, and global events:

• The Dot-Com Boom and Bust (1995–2001): The late 1990s saw rapid growth in IT services fueled by the rise of internet technologies. However, speculative valuations and over-reliance on dot-com clients led to a dramatic market collapse in 2000, causing widespread disruption across the sector.
• The Y2K Crisis (1999–2000): Businesses rushed to address vulnerabilities in legacy systems ahead of the year 2000, creating a temporary spike in IT demand. This surge tapered off abruptly after January 1, 2000, highlighting the risks of short-lived, event-driven growth.
• Pre-COVID Slump (2016–2019): A period of slowing growth characterized by global trade uncertainties and delayed investments in IT technologies. Enterprises hesitated to commit to major upgrades amid economic volatility.
• The COVID-19 Boom (2020–2021): The pandemic created unprecedented demand for IT services as businesses adapted to remote work, cloud solutions, and enhanced cybersecurity. MSPs and MSSPs experienced record-breaking growth during this period.
• Post-COVID Adjustment (2022–2023): While the initial surge subsided, the pandemic permanently elevated the baseline demand for IT services. Companies have embraced digital infrastructure, hybrid work models, and advanced cybersecurity as standard business requirements.
• The AI Era (2022–Present): The explosion of artificial intelligence and machine learning technologies is driving a new wave of IT investment. From AI-driven automation and data analytics to advanced cybersecurity tools, the AI era is reshaping the IT services landscape. Companies capable of integrating AI into their offerings—such as predictive maintenance, automated threat detection, and enhanced customer experiences—are gaining a competitive edge and commanding higher valuations.

A Perfect Market Storm For Well-Positioned Companies

The IT services market today is ripe with opportunity, but the rewards are not evenly distributed. Factors creating this perfect storm include:

• Growing IT Dependence: Sectors like healthcare, retail, and manufacturing increasingly rely on IT for efficiency and innovation. MSPs and MSSPs are critical to enabling operations such as IoT-driven automation in manufacturing, hybrid e-commerce management in retail, and telemedicine in healthcare.
• Rising Cybersecurity Threats: The sophistication of ransomware and phishing attacks underscores the need for MSSPs offering 24/7 threat monitoring and Managed Detection and Response. Companies excelling in cybersecurity services are commanding premium valuations.
• Pro-Business Administration: The post-election landscape, coupled with a pro-business Trump administration, brings policy clarity and potential regulatory incentives, encouraging M&A activity in the IT sector.
• Infrastructure Investments: Initiatives like the Stargate AI Infrastructure Project signal sustained demand for IT services such as cloud migration, data management, and cybersecurity.

Uneven Rewards: The “Haves” And “Have-Nots”

The rising demand for IT services presents opportunities, but not all companies are positioned to reap the benefits. The businesses that will thrive in this environment are those demonstrating profitable growth, scalable operations, and a focus on recurring revenue. Conversely, companies that rely on low-margin services, outdated technology, or heavily concentrated customer bases are likely to face challenges in competing and may be swept up in the wave of industry consolidation.

This landscape will:

• Reward Leaders: Companies with strong recurring revenue, scalable operations, and differentiated offerings—such as Managed Detection and Response, compliance services, or hybrid cloud solutions—will command premium valuations and attract investment. Profitable growth, backed by scalable operations, is key to standing out.
• Punish Laggards: Businesses with outdated technology stacks, weak margins, or high customer concentration risks may find themselves struggling to compete. These companies are more likely to become acquisition targets for larger, more efficient platforms during consolidation.

For well-positioned companies, a very short window of opportunity exists to leverage profitable growth and secure premium valuations. For others, it serves as a wake-up call to pivot strategically, modernize operations, or explore M&A opportunities—potentially by integrating into a stronger platform to remain competitive.

Valuation Trends In The MSP/MSSP Market

Valuation trends in the MSP and MSSP sectors play a critical role for owners considering a sale or expansion. Businesses are typically valued using revenue multiples or EBITDA multiples, depending on their growth stage, profitability, and revenue mix. Revenue multiples are common for smaller, high-growth companies reinvesting in operations, while EBITDA multiples are applied to mature, profitable businesses with stable earnings.

Factors That Reward Higher Valuations:

• Recurring Revenue: Predictable monthly recurring revenue from true services, such as managed IT and cybersecurity, commands a premium.
• Profitability: Clean EBITDA with minimal adjustments demonstrates operational efficiency and attracts buyers.
• Growth Potential: Companies achieving double-digit growth and demonstrating scalability are highly attractive.
• Customer Diversification: A broad client base reduces risk and signals stability to potential investors.
• Leadership: Experienced and capable management teams instill confidence in a business’s ability to execute its strategy.

Factors That Lead to Valuation Discounts:

• Non-Strategic Revenue with Low Margins: Revenue streams like telecom, UCaaS, cloud resale, or government contracts that offer thin margins or face regulatory risks often fail to drive long-term value.
• Non-Recurring Revenue: Heavy reliance on hardware sales, professional services, or software licensing can result in valuation penalties due to a lack of predictability, scalability, and recurring cash flow—key factors buyers prioritize.

Understanding these valuation drivers can help MSP and MSSP owners position their businesses effectively to command higher multiples and attract strategic investment.

Case Studies: Insights From Industry Leaders

With Thrive Networks recently announcing a significant transaction on January 14, 2025, the trajectories of companies like Thrive, eSentire, and Ensono highlight the transformative impact of strategic growth, specialization, and disciplined execution in the MSP and MSSP markets.

1. Thrive: Scaling Through Acquisitions

Thrive Networks serves midmarket and SMB clients across healthcare, finance, and government sectors. Established in 2016 by M/C Partners through the carve-out of Thrive Networks from MetTel and a merger with Corporate IT Solutions, Thrive embarked on an aggressive acquisition strategy to drive its growth.

In the past two years, Thrive completed 15 acquisitions, significantly expanding its geographic reach and service capabilities. On January 14, 2025, Thrive secured a strategic investment from Berkshire Partners, allowing M/C Partners to fully exit. Thrive’s focus on disciplined integration and operational excellence has not only solidified its position as a leader in IT services but also created significant value for investors and acquired companies with strong fundamentals.

2. eSentire: Cybersecurity Expertise Driving Value

Founded in 2001, eSentire specializes in MDR security services for midmarket and enterprise clients. A pivotal investment from Warburg Pincus in 2017 enabled the company to enhance its cybersecurity offerings and expand its market presence.

By 2022, eSentire’s valuation exceeded $1 billion following a $325 million investment from Georgian and CDPQ. Reports in 2024 indicate the company is exploring a potential sale valued at approximately $1 billion. eSentire’s commitment to cybersecurity specialization and profitable growth has positioned it as a standout in a competitive and rapidly evolving market.

3. Ensono: A Turnaround Success

Ensono, carved out of Acxiom Corporation in 2015 by Charlesbank Capital Partners and M/C Partners, began as a distressed asset. Through a clear focus on hybrid IT services and strategic acquisitions, Ensono expanded its capabilities to include cloud-native and data engineering services, transforming into a leader in hybrid IT solutions.

In 2021, KKR acquired Ensono for $1.7 billion, marking its evolution into a high-performing platform. This transformation delivered substantial rewards to early investors and provided acquired companies with the resources, stability, and operational support to thrive under Ensono’s leadership.

Shared Lessons From Success

Across Thrive, eSentire, and Ensono, the value of disciplined execution and strong fundamentals is evident. Early investors and companies with solid foundations that became the platform leaders reaped substantial rewards, but the benefits extended far beyond these initial entities. Smaller or struggling businesses that might have faltered independently found new life through integration, leveraging the scale, resources, and expertise of these larger platforms.

These examples underscore a fundamental truth in the IT services sector: sustainable profitable growth and value creation rely on building and maintaining solid foundations. Whether as a platform company or an acquired entity, success hinges on strategic execution, operational excellence, and a relentless focus on long-term viability.

4 Key Considerations For IT Services Owners

Deciding whether to sell or hold an IT services business demands honesty, structure, and a thorough assessment of its strengths and weaknesses. Be candid with yourself and your investors—if there are aspects of your business you find lacking, potential buyers will likely notice them too. This doesn’t mean you should avoid entering a sale process, but you need to be prepared with answers and mitigation strategies for any gaps, as these will inevitably affect valuations.

Key Factors to Consider:

1. Financial Performance: Evaluate your company’s revenue growth, profitability, and recurring revenue streams. Focus on profitable growth and ensure your financials are clean, transparent, and defensible. If a significant portion of your revenue comes from non-strategic sources like hardware resale or low-margin services, adjust your valuation expectations. Buyers prioritize recurring revenue, strategic growth, and long-term profitability.
2. Market Conditions: Gauge the current demand for IT services and the level of investor interest. Are you receiving inbound inquiries from potential buyers? Are competitors in your space being acquired? While the market remains favorable due to the increasing reliance on technology and cybersecurity, strong fundamentals are critical to capturing maximum value.
3. Specialization: Clearly define your unique value proposition. Offering specialized services—such as managed services for niche applications, vertical expertise, or advanced cybersecurity—can significantly enhance your valuation. Buyers are drawn to companies with differentiation and the ability to address complex customer needs effectively.
4. Investment Objectives: Align your decisions with both personal and investor goals. Are you ready to capitalize on current market conditions with a sale, or is your business better positioned for greater value through continued growth? Defining clear objectives will help guide your strategy and ensure alignment with stakeholders.

By carefully considering these factors and preparing accordingly, you can navigate the decision to sell or hold with confidence. Success depends on aligning your strategy with market opportunities and long-term goals while maintaining a disciplined and realistic perspective.

Finally, stay grounded—don’t let greed cloud your judgment. Remember the timeless Wall Street axiom: "Bulls make money, bears make money, but pigs get slaughtered." Striking a balance between ambition and practical outcomes ensures you achieve sustainable value and avoid overreaching in pursuit of short-term gains.

Is Now The Right Time To Sell?

While the MSP and MSSP markets remain attractive, today’s economic climate demands a more nuanced approach to valuations. The decision to sell an IT Services business depends on market position, financial health, and personal objectives of the ownership group. Success stories like Thrive, eSentire, and Ensono demonstrate the power of leadership, specialization, and strategic execution in driving value and securing premium multiples.

If you’re considering selling, take the following steps to prepare:

• Analyze Your Business: Conduct an honest assessment of your financials, competitive position, and growth potential. Identify your strengths and address weaknesses that could detract from your valuation.
• Engage Buyers: Start discussions with private equity and strategic buyers to gauge market interest. Don’t ignore inbound inquiries, as even early conversations can provide insights into how your business is perceived and valued. These discussions will help you understand current valuation benchmarks and where your business stands in comparison.
• Consult Advisors: Work with experienced financial and M&A advisors who can guide you through the sale process, uncover opportunities, and help you position your business for maximum value.

The choice to sell is deeply personal and should align with both long-term goals and the current market dynamics. Whether you decide to sell now or continue operating your company, the foundations of success remain the same: focus on profitable growth, differentiation, and operational excellence. By growing profitably, and maintaining a loyal customer base, you can ensure your business thrives—whether it’s under new ownership or your continued leadership.