Jeff Homer·May 20, 2024

How to Buy 40 Businesses in 4 Years | Jeff Homer Interview

Jeff Homer is a Harvard-educated finance professional with a background at BC Capital and Reservoir Capital who in 2019 bought a small music school in suburban Denver (Dana V Music, ~$500k revenue) as a side project while working at a family office. He paid just under 3x SDE using 100% personal equity with no SBA financing, retaining the founder at 10% equity. Recognizing the space had extremely sticky customer relationships (average enrollment over two years), high LTV-to-CAC ratios enabled by cheap Google keywords, and massive operational improvement opportunities because most owners were musicians rather than operators, Jeff quickly expanded to a second school in Las Vegas as a remote operating test, then raised friends-and-family growth equity alongside acquisitions three and four in October 2019. He left his day job in February 2020 (coincidentally just before COVID) with five schools operating. By January 2021 at 12 schools he raised institutional growth equity from Newer Ventures, hitting the original 40-school target in October 2022. In January 2023 he sold majority control to a PE sponsor and stayed on as CEO, at which point the platform had approximately 65 music schools and 5 dance schools doing $65M in revenue. The episode is notable for Jeff's articulate analysis of multiple arbitrage dynamics in the lower middle market, his templated GM-elevation model, and his candid reflection that achieving institutional scale meant trading away the personal freedom that first attracted him to ETA.

Deal facts

purchase price: high $200k range (just below 3x on ~$500k revenue business with low double-digit margins)
multiple: just below 3x SDE
sde ebitda: low double-digit margins on ~$500k revenue (first acquisition)
revenue: $500k (first school, Dana V Music); ~$65M platform revenue at time of interview
financing structure: 100% equity (personal balance sheet) for first acquisition; no SBA used; subsequent acquisitions funded via regional bank facility at ~2x cash flow leverage plus three tranches of growth equity (friends/family, then institutional)
notes: Bought 90% of Dana V Music in January 2019; seller (Dana Vatraj) rolled 10% equity and remained involved. By acquisition 3-4 (October 2019) raised first friends-and-family equity round and brought in First Western Trust bank facility. January 2021 at 12 schools raised first institutional growth equity from Newer Ventures (~15-20% stake). October 2022 reached ~40 schools. January 2023 sold majority to institutional PE sponsor, stayed on as CEO. Platform had 65 music + 5 dance schools at time of interview.

Why this business

Jeff came across a listing for a music school through local business brokers while doing an informal search in Denver. It connected with his personal background as a pianist and choir member. He recognized music schools had exceptionally sticky student-teacher relationships, a recurring revenue model with monthly auto-debit, negative working capital, and massive operational improvement opportunity because most owners were musicians first and operators second. He saw the space as a proven roll-up thesis (similar to dental and vet consolidations) that had not yet been executed in the music/dance school segment.

What's working

Recurring revenue model: parents pay monthly via credit card auto-debit in advance, teachers paid in arrears, creating a modest negative working capital cycle
High customer lifetime value: average enrollment life over two years, LTV in the thousands of dollars gross profit, customer acquisition cost only $200-300 via Google/digital marketing
Low CPC in a fragmented keyword space: $3-6 per click for 'piano lessons near me' with very little competition from other operators who were not marketing themselves
Operational digitization: replacing pen-and-paper scheduling and paper timecards with vertical SaaS tools freed up staff time and enabled reinvestment in marketing
Incremental margin is very high: gross margin ~50% on each additional lesson, so marketing-driven growth is accretive at high rates
Multiple arbitrage: buying at 3-5x in the lower market and building toward middle-market valuations in the mid-teens range as the platform scaled to $65M revenue
General manager model: elevating front-desk administrators or tenured teachers to GM role, wrapping them with centralized shared services (payroll, marketing, HR, finance, tax) to let GMs focus on student/teacher/parent experience
Programmatic acquisition integration: highly similar business models across all locations allowed templated, repeatable integration at a pace of approximately one deal per month
Expansion into dance: dance schools are a larger private-instruction market than music, with higher group-lesson margins, roughly doubling the acquisition surface area and increasing velocity to two deals per month

What's hard

Cultural friction with artistic communities: artists have a natural negative predisposition to commercial or business activities; Jeff had to consciously downplay his finance/Harvard background and lead with his personal identity as a pianist
Owner-dependency at acquisition: most sellers are musicians or dancers who ran the operation informally (Google Sheets, paper timecards) and were not interested in or capable of staying on as operators post-close
Selling is stigmatized in artistic communities: artists view selling as 'selling out,' requiring Ensemble to reframe the sale as a milestone for the community rather than a defeat
Dance business has high beta margins: dance group lessons have very high incremental and decremental margins, meaning a 10% revenue drop can significantly hurt profitability in a way music's private-lesson model is more insulated from
Dance required new leadership: expanding into dance required retooling the leadership team with people who had authentic credibility in the dance world, which Jeff did not personally have
Giving up independence at scale: taking on an institutional majority sponsor in January 2023 meant giving up the personal freedom and autonomy that originally motivated Jeff to enter ETA; he describes it as 'getting hired again'

Notable quotes

I just went digging through the haystack looking for needles was really my approach. I would love to tell you that I did a wonderful kind of top-down analysis of the US economy and identified music and dance schools as being this sort of pristine rollup opportunity that had yet been untouched, but that's just not how it happened.

The difference the level of time and effort it takes to be a high performer, which I expect is typical of most of the folks that are interested in ETA, the level of time and effort that you are used to putting into your job versus the level of time and effort that will get you fired is more than enough time to run a search.

I had to really sand down the elements of my personality that were like Harvard, New York, Finance. No, I was like, no, hey, I'm a pianist. That's going to be my identity when I'm in this building.

I got into ETA for the personal freedom, right. I was like, I want to bet on myself, I want to be my own boss, I want to have absolute control over my time. And I give up all of those things in the course of taking on a majority investor and a board and a sponsor. So I viewed it as getting hired again.