Managed service providers have a new type of acquisition target: companies that don't look anything like them. As consolidation accelerates in the IT services sector, MSPs are buying value-added resellers and professional services firms — businesses built on project work and one-time revenue rather than recurring contracts.
The logic is counterintuitive but hard to ignore. Non-recurring revenue can be acquired at a discount, and VARs bring something MSPs often lack: deep, durable client relationships that predate and outlast technology cycles.
AI is putting pressure on the traditional help-desk model and some hybrid IT service providers who can do more than just manage an IT environment are competing for MSP accounts. Some see buying a VAR as a way to own the customer, not just the contract, Martinwolf managing partner Seth Collins told Channel Dive.
“Especially for the bigger [MSPs], I think it absolutely makes sense to buy project-based service companies or VARs to buy customers,” Collins said. “In my opinion, it'll be a better risk-reward and a better ROI if you start looking at buying customer bases and buying those geos and buying some of those other professional services.”
The trend suggests a newfound financial flexibility, as MSPs increasingly receive one-time revenue that comes from professional services and resale. Many MSPs preach an 80-20 ratio of recurring-to-non-recurring, but the maxim could be softening. Collins said the most important percentage is the amount of non-recurring revenue that is tied to MRR. Standalone one-time revenue might not help.
“To me, it's the correlation between the two that drives value, because that shows ownership of the account,” he said.
Not everyone in the MSP channel understands just how entrenched VARs are with their clients, Collins said.
“I think VARs have the stickiest, the deepest relationships with their clients that transcend not only eras but technology,” he said.
The end of arbitrage
Investing habits change as the industry shifts emphasis from scale to strategy. MSPs are making targeted acquisitions of smaller companies to fill in gaps, rather than chase volume.
“More and more companies are realizing that they need to be more pragmatic, and it's not necessarily a race to just buy for the sake of growth,” he said. “You need to be smart about it.”
MSP roll-ups that focused on financial arbitrage have failed, prompting buyers to ensure that they have a deeper foundation in place, he added.
“In the old days, they'd say, 'We’ve got four $5 million MSPs. We could trade at 6-times EBITDA. Let's put it together to $20 million, and we could trade at 12-times,'” Collins said. “That used to happen, and that would happen all the time, and we all learned very quickly that the exit gets crushed because you need to be integrated.
The state of partner M&A
IT partner consolidation is increasing in 2025, driven by lower interest rates and greater market stability, according to Martinwolf’s latest scoreboard. B-level firms started transacting in the second half of 2025 after being mostly shut out of M&A in the first part, Collins said. The midmarket private sector has realigned expectations.
“Even if interest rates were higher and there was some uncertainty in the market, the really good companies were desirable. But it was the next-tier companies — the companies with a little bit of hair, the companies that are good but not great, companies that need a little bit of help — those companies, which are usually very en vogue in trade, weren't trading through the third quarter in ‘25,” Collins said.
Collins pointed out the trend in November. Second-tier companies wanted top-level valuations, but investors weren't willing to give them. Uncertainty about tariffs and other economic factors had hampered their risk appetites.
But Collins said market activity and deal flow are beginning to align.
“Buyers are a little bit more aggressive, because they can be. Interest rate markets are calmer. But I also think sellers are a little bit more realistic and accept the fact that they may not be that A+ company, but there's nothing wrong with being a B+ company,” he said.
Moreover, prognostications are good for the IT channel as a whole. Martinwolf’s scoreboard predicts North American cloud and service providers will grow 5.6% in 2026, up from 1.1% in 2025. Value-added resellers and distributors will grow 6.1%, up from 2.7%.
