The IT channel M&A market has experienced a noticeable slowdown in transaction volumes over the past 12–18 months. However, beneath the surface, fundamentals remain attractive – recurring revenues, delivering business-critical services, fragmented supply, and large end markets continue to underpin investor interest. What has changed is how capital is being deployed, where growth is being sought, and what attributes are most valued in MSP platforms as we head into 2026.
Scarcity of Scale and Changing Private Equity Strategies
A key feature of the current market is the scarcity of privately owned, scaled MSP assets. As a result, mid-market private equity firms are increasingly dropping below their target cheque size, backing smaller platforms with the intention of building scale through M&A. This has made the quality of the management team more critical than ever. Investors are placing significant weight on management’s ability to execute a buy-and-build strategy, including having a well-cultivated M&A pipeline and demonstrable integration experience.
In competitive markets, PE is shifting its focus from technical leadership towards more commercially minded leaders. Agile management teams that can creatively approach acquisitions, cross-sell services, and respond to evolving customer needs are seen as better positioned to drive value creation.
End Markets, Customer Mix, and Organic Growth Challenges
Customer size and sector continue to be major value drivers—or drags. Organic growth remains difficult across much of the market, increasing the importance of exposure to resilient and growing end markets. Defence, critical national infrastructure (CNI), financial services, legal, and compliance-driven sectors are consistently highlighted as attractive due to higher spending, regulatory complexity and long-term demand.
The public sector remains a mixed picture. While it offers attractive scale and defensiveness, decision-making cycles are slow and sales processes are lengthy. Framework requirements can add uncertainty, as revenue is contingent on renewals and ongoing competitiveness. That said, being listed on multiple frameworks creates high barriers to entry, and MSPs with a strong track record of renewal are well positioned. Education, by contrast, is viewed less favourably, with IT spend forecast to grow only at low single-digit rates.
We are seeing increased appetite in SMB focussed MSPs, which are proving attractive due to shorter sales cycles and less complex IT environments. Above 500 seats, IT environments become significantly more complex, and while this presents more cross sell opportunities, the lumpy nature of winning these larger customers can be less attractive.
AI, Automation, and Evolving Service Models
AI adoption is a major theme across the channel, particularly within service desks. Many MSPs are attempting to deploy AI to auto-resolve routine tickets, reduce volumes, and improve customer experience. However, it remains unclear who is executing this effectively as many MSPs remain in the early stages of adoption and differentiation is difficult to assess.
Beyond internal efficiency, channel partners that can help customers adopt AI responsibly—while maintaining strong security and governance—are likely to command premium valuations or attract strategic interest. This reflects a broader shift towards more consultative, high-value service models.
Infrastructure choices are also under scrutiny. While some investors favour public cloud due to its scalability and capex-light nature, others see renewed interest in private cloud. Advancements in AI workloads, strict data security requirements, and a desire for cost predictability are driving this view. Recent commercial due diligence exercises have been supportive of private cloud offerings where these factors are present.
2026 Outlook
Looking ahead to 2026, data sovereignty is in certain sectors is expected to become an increasingly important driver of M&A and strategic positioning. Geopolitical uncertainty, regulatory pressure, and customer sensitivity around data residency are likely to favour MSPs with clear sovereignty credentials and secure infrastructure propositions.
In summary, while transaction volumes may remain subdued in the near term, the IT MSP M&A market remains fundamentally attractive. Investors continue to favour recurring revenue models, exposure to growing end markets and platforms capable of executing disciplined M&A, in what remains a fragmented landscape. As these themes intensify into 2026, differentiation will hinge on leadership quality, sector focus, and the ability to deliver secure, AI-enabled services at scale.
Gordon Carstairs
Gordon Carstairs is Partner, Deal Advisory – TMT M&A at BDO
