Morgan McCauley·January 29, 2024

How to Buy a $2.5m Home Care Business | Morgan McCauley Interview

Morgan McCauley left a six-year career trading at a New York macro hedge fund and then three years at a California family office to pursue entrepreneurship through acquisition, ultimately abandoning a planned partnered self-funded search (his partner backed out when his own startup took off during COVID) and a near-miss $3m all-equity deal for a medical supply distributor before landing in private-duty home care. In October 2021 he closed on a South Florida home care agency for just under $2.5m (about 4x SDE), funding roughly 30% equity via an SBA loan and a 401k ROBS rollover with no seller note, just a 10% escrow holdback. Despite an early Medicaid reimbursement transfer scare that nearly froze cash flow, the seller's strong year-one support and inflation-driven rate increases plus an aging client base drove 40% revenue growth to $3.5m, after which Morgan deliberately traded near-term take-home pay for reinvestment in systems, hiring, and geographic expansion, betting he can roughly double the business without proportionally growing headcount. The episode also doubles as an explainer on the private-duty (non-skilled, long-term, self-pay/Medicaid) versus Medicare-certified (skilled, acute, insurance-reimbursed) home care segments, and on the search-fund math behind choosing self-funded/SBA ownership over raising a traditional search fund.

Deal facts

purchase price: $2.5m (just shy of $2.5m)
multiple: ~4x SDE (or ~5x if you deduct $100k from SDE, closer to 5x EBITDA)
sde ebitda: SDE north of $600k at close
revenue: $2.5m at acquisition (June 2021 deal found, closed October 2021); grew to $3.5m by end of year one (~40% growth)
financing structure: SBA 7(a) loan (~70% of deal, rate locked at 5.5%), ~30% equity funded via a ROBS rollover of his 401k, no seller note but a 10% ($250k) escrow holdback tied to rep/warranty and performance hurdles
notes: Put in $750k of his own money (roughly $325k-ish from savings and the rest via 401k ROBS, split ~50/50 natural person / 401k plan owning the business). No debt/no seller-note structure meant the 10% holdback stood in for a seller note. Deal took from June 2021 (found) to October 2021 (closed), delayed partly by Medicaid license/reimbursement transfer issues. Business grew ~40% top and bottom line in year one (largely inflation-driven rate increases plus aging of existing client census), then flat revenue in year two as he reinvested in infrastructure, causing take-home margin to dip from ~23-25% SDE margin toward ~18-22%.

Why this business

Morgan spent 6 years at a NY macro hedge fund, then 3 years as the sole non-family investment professional at a California family office doing PE/VC, before deciding search offered the direct pay-for-performance feedback loop and ownership he wanted. He initially planned a self-funded partnered search with his childhood best friend Pete, but the partnership dissolved when Pete's startup took off during COVID, and after analyzing the economics of a traditional (funded) search versus self-funded, they concluded raising equity capital to pay a searcher salary was too expensive relative to giving up equity. After losing a first deal (a medical supply distribution company) in December 2020 that required a $3m all-equity raise, Morgan pivoted toward smaller, SBA-financeable deals so he could own the business outright without investors. He landed in home care somewhat by accident: an early deal he chased sold medical supplies to home care agencies, which got him interested in the space; he then found his eventual acquisition through another local searcher who had bid on it and lost. He was drawn to the demographic tailwinds of an aging Florida population, the recurring/non-discretionary nature of the revenue, no customer concentration, no CapEx, and a seller relationship that felt strong.

What's working

Recurring, non-discretionary revenue from an aging private-duty home care client base with no meaningful customer concentration and low CapEx
Strong seller transition: the seller (a retiring nurse in her 70s) stayed engaged for a full year, motivated partly by the 10% holdback, and set Morgan up for a smooth first-year ramp
Inflation plus the natural 'life cycle' of home care clients (need for care escalates over time) drove ~40% revenue growth in year one with minimal intervention
Reinvesting in technology, digital client/caregiver intake, and hiring a stronger office team (now himself plus three well-compensated employees) built infrastructure that he believes can roughly double volume without proportional headcount growth
Deep personal investment in learning the regulatory landscape gave him an edge versus incumbent mom-and-pop owners who have stopped tracking the rules
Good tenured caregiver base and word-of-mouth referral funnel it inherited from the seller, which solves the 'cold start' matching problem in a new market

What's hard

Heavily regulated industry (license transfer, Medicaid reimbursement transfer) nearly caused a cash flow crisis in the first two to three months of ownership
Acknowledges he probably overpaid for the deal (4x SDE / ~5x EBITDA felt high even at the time, and a fellow searcher/mentor, Robert Graham, advised against the price and the private-duty model)
Choosing to reinvest in growth (new hires, systems, market expansion) meant deliberately taking home less money and disrupting a smoothly running, profitable status quo -- a psychologically hard decision with no guaranteed payoff
Private-duty clients can be lost quickly (e.g., a cluster of client deaths from a flu outbreak in one month materially hurt revenue), unlike the steadier demand-side economics of Medicare-reimbursed skilled home health
Geographic expansion into new counties requires solving the caregiver/client cold-start matching problem from scratch
Considered but rejected buying a Medicare-certified home health agency or tuck-in acquisitions because of the much higher regulatory/clinical bar and would only consider one with existing management layers already in place

Notable quotes

The salary that we would be paid if we did a traditional search raised from traditional search investors was too expensive... it's expensive.

She would get these faxes, she'd write down the authorization we just got, then she'd flip that piece of paper over and put it back in the printer upside down to save the paper.

I paid 2 and a half million for north of 600k of SDE, so call it a 4x on SDE... which I feel, I'm two years removed from this now, I feel is high, I feel like I overpaid. But the way things have gone, would I do it again? Yes, definitely do it again at that number.

You have to finance that growth investment yourself, and I can see it's kind of a risk tolerance question... you've got something that's nicely a machine that's smoothly running and you're scared about just disrupting that.