Insights - Executive Brief
IT Services M&A in 2025
By Alexander Zaghloul, Principal at Zaghloul & Co.
March, 2025
As we step into 2025, the M&A environment for small and mid-sized IT services firms remains highly active—even if it rarely makes headlines. While much of the media focuses on billion-dollar software deals, what’s happening quietly in the lower middle market is just as telling: platform-backed roll-ups, founder-to-founder strategic combinations, and strong interest from PE firms seeking their next niche vertical.[i]
For owners of IT services businesses doing $5M–$50M in revenue, the landscape is rich with opportunity— particularly for companies with a clear strategic focus.
A Market That Rewards Specialization and Scale. Lower-middle market activity is being driven by a mix of factors:
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PE Dry Powder Still Flowing. Despite tighter debt markets in 2022–2023, private equity capital remains abundant. PE firms that raised record funds in 2023 and 2024 are now actively deploying into IT services, particularly in recurring revenue-heavy, low-churn verticals like managed services, cloud enablement, and compliance tech.[ii]
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Tuck-Ins and Bolt-Ons Are Back. PE-backed platforms are once again acquiring smaller firms as strategic bolt-ons.[iii] Founders with healthy financials, documented processes, and strong client retention are seeing multiple offers—even if growth has been modest.
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Valuations Have Stabilized. The days of 10x EBITDA for unscaled MSPs are over—but well-run firms are still seeing healthy valuations in the 6–8x EBITDA range, with premium outcomes for niche capabilities (e.g., Azure-only cloud integrators, compliance-focused MSSPs, or AI implementation shops).[iv]
What Buyers Want in 2025. For firms thinking about a sale—or even a strategic acquisition of their own—understanding current buyer criteria is key:
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Documentation and Process. Buyers are prioritizing operational maturity over just revenue growth. SOPs, CRM usage, contract clarity, and employee retention all matter.
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Specialization Over Generalization. Vertically focused MSPs (e.g., healthcare IT, construction, financial services) are commanding premium attention due to domain expertise and pricing power.
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Recurring Revenue is Still King. Buyers continue to favor firms with high recurring revenue and predictable gross margins. Project-based firms are less attractive unless they show repeat engagement or have sticky integration roles.[v]
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Founder Continuity is Valued. Most lower-middle-market acquirers (especially PE) expect founder involvement post-close. If you’re looking to exit entirely, it helps to have a strong second layer of management already in place.
The Rise of the Founder-Led Role-Up. Not all acquisition activity is driven by institutional capital. More and more operators are taking the reins themselves—forming holding companies, raising $10M–$25M in equity and debt, and pursuing roll-ups with a long-term view.
For sellers, this opens up a new category of buyer, one that is strategic, hands-on, and focused on cultural fit—often with more flexible terms than traditional PE-backed acquirers.
Thinking About an Acquisition? If you’re running an IT services company and wondering whether 2025 is the right time to explore M&A, here’s what we’re seeing:
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The window is open for strong outcomes—especially for firms that are profitable, process-driven, and specialized.
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Valuations have normalized, but strategic interest remains high.
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Whether you’re seeking a full exit, recap, or growth via acquisition, now is a good time to prepare.
At Zaghloul & Co., we work with founder-led IT service businesses to evaluate, structure, and close transactions with a clear strategy in mind. If you're thinking about selling—or acquiring—we're happy to share what we're seeing on the ground.
[i]Axial, “The Top 50 Lower Middle Market Technology Investors & M&A Advisors – 2025,” Axial, 2025. https://www.axial.net/forum/the-top-50-lower-middle-market-technology-investors-ma-advisors-2025
[ii] Bain & Company, “Outlook: Is a Recovery Starting to Take Shape? Global Private Equity Report 2025,” Bain & Company, 2025. https://www.bain.com/insights/outlook-is-a-recovery-starting-to-take-shape-global-private-equity-report-2025
[iii] IT ExchangeNet, “2025 Middle-Market M&A Outlook,” IT ExchangeNet, 2025. https://5406876.fs1.hubspotusercontent-na1.net/hubfs/5406876/ITX%202025%20Outlook%20FINAL-1.pdf
[iv] PwC, “Global M&A Trends 2025,” PwC, 2025. https://www.pwc.com/gx/en/services/deals/trends.html
[v] Akin Gump Strauss Hauer & Feld LLP, “2025 Perspectives in Private Equity: AI and Technology,” Akin Gump, 2025. https://www.akingump.com/en/insights/articles/2025-perspectives-in-private-equity-ai-and-technology