Robert Graham, Aaron Blick·April 25, 2024

How to Build a Roll-Up to $60m Revenue | Robert Graham and Aaron Blick Interview

Robert Graham (private equity and industrial background, Harvard MBA) and Aaron Blick (healthcare operator who built physical therapy clinics and pharmacies from scratch) partnered in early 2019 to do a self-funded search that quickly focused on in-home healthcare. Their first acquisition was a trio of Home Health, Home Care, and Hospice companies in DFW at under 4x EBITDA on ~$1.2m EBITDA and ~$6m revenue — a sleepy, owner-comfortable business with a strong local reputation. The transition was rocky: an IRS demand letter for ~$650k in unfiled paperwork, a 6-month state vendor hold, a seller who refused to relinquish bank account access, and a seller's daughter who started a competing business and poached key staff. Despite this, they never stopped searching and went on to acquire businesses in Oklahoma, Arizona (the largest SBA deal LiveOak Bank had ever done at the time), Oregon, Pennsylvania, and a second Texas location — eight acquisitions in roughly four years. Their key innovation is a roll-up structure using separate SBA 7(a) loans per entity, with each location's president personally guaranteeing the debt in exchange for equity ownership, requiring only ~$3m in outside equity to build a business generating $15.5m run-rate EBITDA and $60m in revenue with ~1,500 employees — a fraction of the ~$30m equity a conventional roll-up would have needed. Organic growth at existing locations has been substantial alongside the M&A activity, and the founders also run SG, a self-funded search accelerator whose searchers often become Pillar Health Group presidents.

Deal facts

multiple: under 4x EBITDA (first acquisition); lower multiple on Arizona deal (seller had a fixed price target that worked in buyers' favor)
sde ebitda: ~$1.2m EBITDA (first acquisition, Texas); ~$4.8m EBITDA estimated (Arizona, described as ~4x the size of Texas); $15.5m run-rate EBITDA across all entities at time of recording
revenue: $6m (first acquisition, Texas); ~$60m total across all entities at time of recording
financing structure: SBA 7(a) + pari passu conventional debt (largest SBA deal LiveOak Bank had done at the time on Arizona deal) + seller note + preferred equity from outside investors; ~$3m total outside equity raised across three deals; each acquisition is a separate SBA loan in a separate entity
notes: Eight businesses acquired total (first acquisition was a trio of three companies — Home Health, Home Care, Hospice — under same ownership in DFW). Subsequent acquisitions in Oklahoma, Arizona, Oregon, Pennsylvania, and a second Texas location. Two more under LOI at time of recording. Each entity has its own president who personally guarantees the SBA loan and holds equity in that entity. Total employees ~1,500. Targeting ~$20m EBITDA by end of 2024.

Why this business

Robert came from private equity and always wanted to own his own business; Aaron had operated physical therapy clinics and pharmacies and wanted to avoid brick-and-mortar again. They partnered in early 2019 with a thesis that drifted toward healthcare — specifically in-home care — because Aaron had deep industry knowledge and both saw a fragmented market ripe for roll-up at reasonable multiples. The first acquisition was a 'sleepy' but well-established trio of home health, home care, and hospice companies in DFW at under 4x EBITDA, with the roll-up potential as the 'cherry on top.'

What's working

Innovative roll-up structure using separate SBA loans per entity, with each location president personally guaranteeing the debt and holding equity, enabling ~$3m of equity to build a $15.5m EBITDA business vs. ~$30m equity needed under a conventional roll-up
Organic growth at existing locations has been substantial — the Texas business tripled in size, Arizona nearly doubled, Oklahoma also strong; hospice division grew from 3 patients to ~150
Hiring presidents with operational authority on the ground while founders focus on M&A and long-term strategy (yin-and-yang model)
Pipeline from SG (their self-funded search accelerator) — searchers who find home care/hospice deals often become pillar Health Group presidents
Staying in sub-5x multiples by targeting owner-ready-to-retire, lifestyle-business sellers who are not running a competitive auction
Government payers (Medicare/Medicaid) pay reliably fast (~10 days) with essentially no bad debt
Relationship-based sourcing — kept dialogue alive with Arizona seller through COVID for ~1.5 years before closing
Avoiding franchise private-pay home care and group homes, which both founders view as inferior sub-niches

What's hard

Dishonest seller on the first acquisition: IRS demand letter for ~$650k in unfiled ACA paperwork discovered within weeks of closing; Texas state vendor hold froze one payer's payments for ~6 months due to seller's unfiled state paperwork
Seller refused to come off bank accounts as a signer post-close, creating real financial risk and a delicate diplomacy challenge
Seller's daughter started a competing business nearby and hired away key employees shortly after closing — lesson: non-competes don't cover family members, need to think about key employee retention plans and employment agreements with non-solicits
Structural downside: all presidents must accept personal guarantees on SBA debt, which is a serious commitment that limits the pool of qualified president-partners
Each entity being a separate legal structure (Pillar Health Group 1 through 6+) adds complexity in management and reporting
Government payer reimbursement rate and regulatory risk ('pen stroke risk') — business fortunes tied to Medicaid/Medicare policy changes

Notable quotes

If you're going to take this risk you should be compensated for it. And if you're buying a company with 300K of EBITDA you probably could make more money just working at McKinsey — and not taking a personal guarantee and not being up at 3 in the morning thinking you're not going to make your debt payment or payroll.

I have never seen another group use a structure like ours. So I would call it innovative — and this might be the one thing you give me credit for innovating today, Will.

Just over $3 million of equity to build a company with $15 million of EBITDA. There is no way you could have done that using conventional debt.

We never stopped searching. So throughout this entire process and the horror story that we just disclosed, we never stopped searching.