by Madhur Duggar, Excendio Advisors
Executive Summary (For Busy Owners)
The MSP industry is not heading into a downturn — but the easy years are behind us. Growth is normalizing, buyers are more selective, and capital is no longer abundant or forgiving. AI, tax policy, macro volatility, and consolidation will all shape outcomes in 2026, but none of them are automatic wins. MSP owners who stay disciplined on cash flow, pricing, specialization, and exit readiness will do well. Those waiting for the market to bail them out likely won’t.
AI: Useful Internally, Uneven Externally
AI is already changing how MSPs operate — mostly behind the scenes. Many MSPs are using AI to improve ticket handling, automate workflows, and increase efficiency inside their own business. On the client side, early AI services have focused on training, governance, and readiness assessments. Where most MSPs are still searching is in helping clients use AI to grow revenue, not just save time. That’s not a surprise. Most MSP clients have fewer than 50 users and relatively simple operations. They don’t need custom AI solutions — and they won’t pay for them. Over time, standardized AI tools will emerge to support common SMB workflows, and MSPs will resell or implement them. That business will look a lot like VAR work: competitive and lower margin. The MSPs that truly benefit from AI will be those that either serve larger clients or specialize deeply in a vertical. They’ll learn on complex engagements, build repeatable playbooks, and then selectively deploy those insights across their client base.
Why MSP owners should care: AI will help your internal efficiency, but it won’t automatically increase margins. Unless you have scale or specialization, AI risks becoming another low-margin add-on. Focus on where AI genuinely differentiates your MSP — not where it just sounds good in a sales pitch.
OBBBA: Helpful, But Not a Free Pass
The One Big Beautiful Bill Act is broadly positive for MSPs, especially over time. Making the QBI deduction permanent protects after-tax income for S-Corp owners. Permanent R&D expensing supports investment in automation, tooling, and internal platforms. Expanding interest deductibility to 30% of EBITDA improves cash flow for MSPs using leverage for acquisitions or growth. The shortened QSBS timeline has drawn attention, but it’s only relevant for a small subset of MSPs that are growing rapidly and reinvesting heavily. For most MSP owners, converting to a C-Corp simply to chase QSBS benefits does not make sense and can actually reduce cash flow due to double taxation.
Why MSP owners should care: OBBBA makes investing in your business easier and safer from a tax perspective — especially if you’re an S-Corp. But it doesn’t change the fundamentals. Don’t let tax strategy drive your entire operating or exit plan unless your growth profile truly supports it.
The Macro Environment: Growth Is Normalizing, Volatility Is Rising
The macro picture heading into 2026 is uncertain. Equity markets are jittery, private capital is more selective, and exit multiples are no longer expanding automatically. Job growth has slowed materially compared to 2021–2022, and in some states it has turned negative. Fewer new hires at your clients means fewer new endpoints — and slower MSP growth. Budget pressure is also delaying projects, especially for MSPs serving government, education, and nonprofit clients. The post-COVID growth bump from remote work is largely behind us. Cloud adoption continues, and AI will add incremental demand, but overall MSP growth is likely to normalize around 10%, not the 15–20% many owners enjoyed a few years ago. There are positives: interest rates are likely coming down, which helps M&A and investment. Tariffs, however, remain a wildcard. Many companies have absorbed higher costs so far, but if those costs get passed through in 2026, clients may pull back further on discretionary spend.
Why MSP owners should care: This is not the time to run thin on cash or assume growth will fix everything. Tighten cash flow, revisit pricing, stay close to customers, and proactively manage churn. Financial discipline will matter more than clever strategy decks.
Consolidation: Harder to Exit Alone, Harder to Exit Together
Consolidation is continuing, but it’s getting harder to find MSPs that are truly exit-ready with more than $1M of EBITDA. Buyers are increasingly looking outside the U.S., particularly to Canada and Australia. For smaller MSPs, growing from $500K to $1M of EBITDA in three years through organic growth alone is very difficult in a normalized market. As a result, more owners are exploring partnered exits — combining with peers to go to market as a regional or national platform. While the idea makes sense, execution is hard. MSPs differ in operational maturity, financial readiness, customer mix, and leadership depth. Just as importantly, owners often want very different outcomes from an exit. Without a clear structure, these partnerships rarely make it past the idea stage.
Why MSP owners should care: If you’re subscale, going it alone may limit your exit options. Partnering can work — but only with structure, alignment, and flexibility around liquidity and roles. Scale without planning doesn’t create value; it creates friction.
Closing Thought: 2026 Is About Being Intentional
The next phase of the MSP market won’t reward autopilot. AI, tax changes, macro conditions, and consolidation all matter — but none of them replace disciplined execution. MSP owners who are clear about their goals, realistic about growth, and proactive about readiness will have options. Those waiting for another wave of easy growth may find that the market forces decisions on them instead. 2026 is less about doing more — and more about doing the right things deliberately.