The business of providing personalized care to seniors, enabling them to “age in place with grace,” is intimate and local. As such, the home care industry is highly fragmented, comprised primarily of “families serving families.”
Running many of the top performing home care companies are Managing Owners that found a way to unlock the golden handcuffs of “Big Corporate” to achieve their dream of company ownership. We have had the honor and privilege of being involved in hundreds of such “change of ownership” transactions over the past 15 years in which a top performing retiring owner sells to an aspiring owner. Most of these new Managing Owners were inspired by a purpose driven business they could get passionate about while achieving compensation and earnings commensurate with their skills, experience and effort – “Purpose, Passion & Profit.”
While much has been written about the purpose and passion of the industry, this piece focuses on the profit – the key enabler of providing reliable and compatible caregivers to deliver life changing benefits to families.
Earning a Living
We recently completed a deal in which the new Managing Owner paid $1,000,000 for a home care company that had historical Owner Compensation & Earnings of $275,000. As illustrated from the following, the Investor-Operator’s return on equity will exceed 70% assuming no growth, an ultra-conservative assumption in the high growth home care industry being fueled by an ever-expanding senior population.
Purchase Price: $1,000,000
Down Payment Equity: $200,000
Acquisition Financing: $800,000 ($110,400 of annual principal & interest payments of which half is principal)
By sustaining historical cash flow, the new Managing Owner after $75,000 of management compensation and $55,000 of interest expense would generate annual earnings (EBITDA) of approximately $140,000, providing the Investor-Operator with a return on equity of more than 70%. This exceptionally high return shows the power of leverage.
The reality, however, is that the actual return often exceeds 100% because most new Managing Owners grow the business. Amid expanding demand from a senior population steadfast in their intention to stay home for life, these home care companies tend to respond well to professional management, new energy and fresh ideas.
The purpose is to make a difference in the lives of seniors. The passion is employees that love the mission. The profit is exceptional.
-Scott Osborne, Founder & Managing Owner
