Diligence · IT Services & MSPs

IT Services & MSPs Quality of Earnings: An Independent Sponsor's Counsel

Independent sponsor counsel for IT services and MSPs, focused on Quality of Earnings and the deal mechanics that protect sponsor economics and LP alignment.

EV range $8M to $100M EV EBITDA $2M to $18M Audience Buy-side / Sponsor
The deal context

Quality of Earnings on IT services and MSPs deals is one of those workstreams that looks routine on a checklist and decides outcomes in practice.

The typical IT services and MSPs platform sits at $8M to $100M EV with EBITDA in the $2M to $18M range. The thesis runs on MSP platform with regional or vertical-specific bolt-ons. An MSP at 70% recurring revenue trades at one multiple, at 90% trades at a different one. The mix is the deal.

The moves

How Quality of Earnings actually gets structured.

  1. Engage QofE within five business days of LOI signing.

  2. Scope to include working capital normalization, deferred revenue, and customer concentration.

  3. Share preliminary findings with the seller before final report, to surface disputes early.

  4. Coordinate QofE findings into both the purchase agreement and the LP commitment package.

  5. In IT services and MSPs, layer in MSA assignment review with carve-outs noted as part of the Quality of Earnings workstream.

The common mistake

Treating QofE as a back-office exercise. It is the basis for the price, the working capital peg, and the LP pitch.

Jason's take
"The QofE is the deal book. Read it twice before you negotiate anything."
Jason Powell · Quality of Earnings
Capital after close

The deal is one thing. The capital that opens up after close is another.

Most independent sponsors solve the closing capital and then run into the post-close capital problem alone. The capital markets relationships that matter at month 18 are part of this practice.

MONTH 18
Senior refi
MONTH 24
Dividend recap
MONTH 36
Growth equity
YEAR 4–5
Strategic exit
ENGAGE THE PRACTICE

Quality of Earnings for IT Services & MSPs, on independent sponsor terms.

Independent sponsor counsel that already speaks fluent deal-by-deal economics, structures clean LPAs, and travels with capital markets relationships for what comes after close.