2026 M&A Outlook: IT Services and Digital Marketing

Dear Clients, Partners, and Friends:

If you’re expecting the Oracle of Omaha to hand over his crystal ball to a guy in Cleveland, I’ve got bad news: Warren Buffett’s legacy is safe.  

I spent the last few days re-reading his legendary shareholder letters, and while I’ve mastered the art of minimal bureaucracy to make him proud, I haven’t quite figured out how to buy a failing textile company and turn it into a global empire while wearing a rumpled suit. 

What I do know is the M&A market finally stopped acting like a stubborn mule in a mud puddle, shifting from a state of gridlock to a high-velocity environment where buyers and sellers are finding common ground on getting deals done at fair multiples. 

Comparatively over the last two years, doing a deal in the lower middle market felt like trying to start a lawnmower in a blizzard: lots of pulling, plenty of smoke, but not much grass getting cut. So, let's jump into our 2026 M&A Outlook.

However, the engine has finally caught, and we’ve got a tailwind at our backs that’s stronger than a Lake Erie windchill gust in January. 

The theme for this year’s letter is "The Great Tailwind: From Recalibration to Accelerated Execution." After two years of wait-and-see sentiment, 2026 has arrived with a multi-directional force that’s finally pushing the lower middle market into a high-momentum execution environment.

Thank you for your trust and support. 

We wish you a fruitful 2026 and stand ready to ring the bell on more closed deals.

Executive Summary: 2026 Inflection Point

For the past 24 months, the M&A market felt like it was in purgatory. Sellers were anchored to 2021 record multiples, and buyers were paralyzed by the cost of debt. Today, the fog has cleared. Interest rates have stabilized, and global private equity dry powder has reached a staggering $1.2 trillion, with nearly a quarter of that capital held for over four years. But 2026 is also a year of The Great Separation. We are seeing a distinct divergence between "Hype-Driven Projections" and "Realized Value.”

While the macro environment is favorable, the technology sector is undergoing a violent correction. As we navigate this tailwind, the winners will be those who move from the hallucination of infinite growth to the reality of operational efficiency.

This shift marks a fundamental move from the era of growth at any cost to one of sustainable profitability and defensible moats. In this new landscape, buyers are scrutinizing unit economics and EBITDA margins with unprecedented rigor, ensuring every dollar of revenue is backed by a resilient delivery model. 

Deal Activity Buyer Focus: The Search for Digital Trust

The resilience of the market is anchored by a flight to quality. Cybersecurity and MSSPs remain the most sought-after subsectors. Data from 2025 shows approximately 130 cybersecurity services M&A deals (e.g., Google acquiring WIZ), with a significant 40 of those occurring in Q2 alone.

Strategic buyers continue to provide the bulk of capital, representing more than 70 percent of disclosed cybersecurity M&A dollars. Meanwhile, private equity remains highly aggressive, executing 165 deals in 2025 across middle market MSP, MSSP, and SaaS targets.

Roll-up strategies have become the primary engine of growth. PE-backed platforms are actively acquiring smaller MSPs to add geographic reach, vertical expertise in healthcare or financial services, and advanced security capabilities. We are seeing a Netscape Moment for standalone tools, as buyers now prioritize "Digital Trust Architecture," firms that own the security stack rather than generalists.  One of the big drivers of this M&A surge is the soaring demand for Microsoft Channel Partners who can navigate the complexity of the ecosystem. In 2026, Microsoft is aggressively expanding AI capacity, with Azure and other cloud services seeing nearly 40% year-over-year growth.

Partners are seeing massive attach opportunities by packaging Microsoft 365 Copilot with deployment, onboarding, and training services as AI moves from a "helpful assistant" to a core part of the enterprise operating model.

This demand is further amplified by the shift to Security Copilot and Microsoft Entra, where security is becoming ambient and autonomous. M&A valuations are rewarding partners who can demonstrably showcase robust practices around this AI-first stack, as buyers prioritize acquiring specialized talent over building in-house.

Sector Dynamics and Valuation Benchmarks

MSP and MSSP Multiples

While historical public benchmarks peaked near 15.5x in H1 2021, current private lower middle market levels follow a "size effect" pattern: 

• Sub-scale MSPs (<$1M EBITDA): Typically trade around 4.25 to 5x EBITDA, reflecting owner dependence. 

• Mid-sized MSPs ($1M–$3M EBITDA): Often achieve 7 to 10x EBITDA, especially with vertical specialization. 

• High-Growth MSSPs: Larger MSSPs with sticky clients can reach 12x–14x, with elite processes occasionally approaching 15-16.5x EBITDA.

  
  

SaaS and Software-Enabled Services

The "Great Separation" is most visible here. Public SaaS traded at a median of 7.4x revenue in 2025, while LMM deals cleared at a 38% discount, averaging 4.6x revenue. 

• Bootstrapped SaaS: Averages ~3.8x revenue. 

• Equity-backed SaaS: Averages ~5.3x revenue. 

• Growth Premium: Increasing ARR growth from <20% to >40% can roughly double the multiple, moving a business from 3x–5x ARR to 7x–10x ARR.

VARs and Cloud Integrators

Traditional project-heavy integrators are valued lower, typically in the 5.5x–7.75x EBITDA range. However, VARs that pivot to managed cloud and recurring infrastructure capture an additional several turns of EBITDA, pricing more like high-margin MSPs.

VALUATION DICLAIMER: All valuation ranges offered above are illustrative and subject to variance based on profitability, customer retention, customer concentration, and management stability. Factors including market demand, economic volatility, "Rule of 40" performance, intellectual property defensibility, and buyer type further impact transaction values.

Deal Structures: Bridging the Value Gap

With the memory of 2021 still lingering, structures are being used to reconcile buyer caution with seller expectations. 

• Earn-outs: These are frequently tied to ARR retention or revenue growth over 12–36 months.  

• Rollover Equity: Founders in the lower middle market are commonly rolling 10%–30%+ of their equity, aligning incentives for a "second exit" that can sometimes exceed the value of the initial check. 

• Risk Allocation: LMM deals rely more heavily on traditional escrows and indemnities rather than Reps & Warranties insurance, which remains more common in larger-cap transactions. 

The Marco View: AI Hype to Realized Value

One of our important 2026 predictions is a significant correction in AI-heavy stocks, triggered by "AI-dumping" from China through low-cost, high-performing open-source models like DeepSeek’s R1. For the M&A market, this means the moat for basic AI wrappers has vanished. We are now valuing integration over innovation. Further, the Data Center Bubble is hitting a wall. With interconnection queues stretching to 5 to 8 years and facilities drawing power equivalent to nuclear reactors, it’s best to focus on firms that optimize existing infrastructure.

This shift marks a critical transition from experimental hype to industrial appl

ication. As proprietary model premiums erode due to efficient open-source alternatives, the real equity value has migrated to the plumbing, the engineering firms that solve the power-to-performance gap. In 2026, a company that can reduce a model’s inference cost by 20% is worth far more than one that simply rents a chatbot. By focusing on these infrastructure heroes, we are helping our clients secure assets that aren't just riding the AI wave, but are actually building the breakwater. This is where the Great Separation becomes most visible: while the bits of generic software are commoditizing, the atoms of power-efficient, integrated systems are becoming the most valuable currency in the middle market.

Practical Guidance for Owners: 2026 M&A Outlook

The tailwind is real, but it will not lift all boats. 2026 rewards those who execute on the atoms and optimize with the bits.

• Focus on Scale: Moving from <$1M to $1M–$3M EBITDA can increase your valuation by $4 to $8 million simply through multiple expansion.

• Prioritize Quality Growth: In MSSPs and SaaS, doubling your growth rate can double your exit multiple on the same revenue base.

• Calibrate Structure: Treat earn-outs as optional upside; prioritize cash at close and ensure any rollover is with a partner who has climbed the mountain before.

This requires more than just showing up; it demands a ruthless commitment to the Rule of 40 and a clean balance sheet. Buyers in 2026 are looking past surface-level ARR to find the structural integrity underneath. 

By hardening your recurring revenue streams and automating service delivery, you transform a fragile business into a high-performance asset that commands premium scarcity value.

As we navigate the tailwind of 2026, the era of the stubborn mule is officially behind us. While I may still be a student of the game rather than the owner of a global empire, the shift from recalibration to accelerated execution is undeniable. 

The fog of the last twenty-four months has lifted, revealing a market that no longer rewards the smoke of hype-driven projections, but rather the fire of operational efficiency and realized value. The opportunity in the lower middle market is no longer a hallucination, it’s a high-velocity reality. 

We’ve pulled the cord, the engine has finally caught, and it’s time to start cutting the grass.

About IT ExchangeNet

Ranked as 2025's #1 middle market M&A firm in the U.S., IT ExchangeNet specializes in lower mid-market sell-side transactions within the IT and Digital Marketing industries. Founded in 1998, our focus lies in partnering with leading channel partners like Microsoft, Oracle, Salesforce, and ServiceNow, as well as MSPs, MSSPs, and Digital Marketing agencies.

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With an extensive buyer database of more than 90,000 IT and Digital Marketing decision-makers, we identify strategic matches for sellers valued above $5 million.

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IT ExchangeNet was also named one of the most admired M&A firms by The INC Magazine in 2025, and a top M&A platform by Axial. What the market is saying... IT ExchangeNet is incredibly proud to be named the top middle-market M&A firm in the U.S., alongside other distinguished industry awards. While these accolades validate our expertise, our true pride is measured by client satisfaction. Delivering exceptional outcomes and earning the trust of the business owners seeking the sale of their business.

From our past clients:

"IT ExchangeNet was a true partner throughout this process. Their deep industry knowledge, disciplined approach, and unmatched network of buyers were instrumental in achieving a successful outcome. They brought more that 60 qualified buyers to the table and guided us through every step with clarity and confidence. We couldn’t have asked for a better advisor.” 

                       - John Ours, CEO of Paragon (Digital Marketing)

"IT ExchangeNet's expertise in identifying more than 75 qualified buyers, and managing the sales process, was instrumental in achieving this successful outcome. Their knowledge in the VAR/MSP space is unparalleled. Moreover, we are confident they found the ideal partner in ISSQUARED to ensure the continued success of our employees and customers." 

                     - Connie Tang, CEO of ComputerLand (VAR/MSP)

"Working with the IT ExchangeNet team was meaningful for us. In addition to their disciplined process and IT industry expertise, we witnessed our anticipated valuation double based on the buyers they identified and managed. They are leaders in the mid-market IT M&A space for a reason.”

          - Doug Levy, CEO of TechSpa (Cloud Security and MSP)

Thank you for reading IT ExchangeNet's 2026 M&A Outlook.