Podcast Summary: Acquiring Minds
Episode: How to Use an SBA Loan to Roll Up from $6m to $140m
Release Date: May 15, 2025
Host: Will Smith
Guest: Michael Davidoff, Managing Partner of Pine Street Group
Introduction
In this compelling episode of Acquiring Minds, host Will Smith delves into the remarkable journey of Michael Davidoff and his partner Jonathan as they transformed a $6 million home care agency into a thriving $140 million revenue portfolio within six years. The discussion centers around strategic acquisitions, the effective use of SBA loans, operational enhancements, and the importance of strong partnerships in acquisition entrepreneurship.
Turning to Acquisition Entrepreneurship
[03:54] Michael Davidoff: "There was a couple pivotal moments for me that put me on this path. Working at a mid-market private equity fund, I realized I wanted to be on the other side of the table—owning and operating a business."
Michael shares his transition from private equity to acquisition entrepreneurship, highlighting the desire to build and operate a business from the ground up rather than managing investments from the sidelines.
Key Takeaway: Personal experiences and pivotal moments can significantly influence the decision to pursue acquisition entrepreneurship.
Initial Acquisition Strategy
[04:31] Michael Davidoff: "We decided to partner and start bidding on deals that aligned with our criteria, focusing initially on the healthcare sector due to its high fragmentation and stable revenue sources."
Michael and Jonathan targeted fragmented industries where consolidation could lead to significant growth. They emphasized the importance of stable revenue and minimal customer concentration to mitigate risks.
Key Takeaway: Selecting the right industry with fragmentation and stable revenue is crucial for successful acquisitions.
Leveraging SBA Loans for Growth
[14:20] Will Smith: "Max leverage means giving away the least equity possible. Why? Just take the next two or three steps."
[14:39] Michael Davidoff: "Max leverage means using as much debt as possible versus equity. The SBA allows us to maximize leverage, sometimes up to 90%, which is unprecedented outside of SBA financing."
Michael explains the strategic use of SBA loans to minimize equity dilution, enabling greater ownership and control over the acquired businesses.
Key Takeaway: SBA loans are powerful tools that can significantly enhance acquisition capacity by providing high leverage with minimal equity dilution.
Operational Enhancements and Digital Transformation
[35:42] Michael Davidoff: "We tore everything down and started from zero, implementing digital systems across HR, scheduling, and client management to streamline operations."
Upon acquisition, Michael and Jonathan focused on digitizing operations, which included adopting modern HR systems, practice management software, and enhancing client and employee experiences through technology.
Notable Quote:
[37:14] Michael Davidoff: "We wanted to make hiring as easy as possible. Our first investment was in HR and payroll systems to accelerate our hiring process."
Key Takeaway: Implementing digital systems is essential for operational efficiency and scalability in acquisition platforms.
Building a Strong Team and Culture
[35:19] Will Smith: "You still invested heavily, but is that fair to say you basically put in systems not to take away value but to add?"
[35:42] Michael Davidoff: "We looked at every function and stakeholder to make the business better for them. Hiring the right people was crucial."
Michael emphasizes the importance of hiring the right talent and fostering a positive company culture to support growth and operational excellence.
Key Takeaway: A strong team and positive culture are foundational to scaling an acquired business successfully.
Scaling Through Acquisitions and Organic Growth
[45:15] Michael Davidoff: "Our EBITDA grew, allowing us to re-leverage and acquire additional businesses without excessive equity dilution."
After stabilizing the initial acquisition, Michael and Jonathan refinanced their SBA debt to fund subsequent acquisitions, maintaining a balanced leverage profile while expanding their portfolio through both organic growth and strategic acquisitions.
Notable Quote:
[61:11] Michael Davidoff: "We more than doubled our business by the end of year two through strategic acquisitions and organic expansion."
Key Takeaway: Releasing equity through growth and careful refinancing can fuel further acquisitions, driving exponential growth.
Management Transition and Leadership
[77:12] Michael Davidoff: "We realized the need for a dedicated management team to handle the growing operations, leading us to hire seasoned industry veterans."
To manage the expanding operations, Michael and Jonathan brought in experienced leaders, allowing them to step back from daily operations and focus on strategic growth.
Notable Quote:
[80:54] Michael Davidoff: "Our choice in leadership was crucial. They had industry experience, were a cultural fit, and were eager to drive the business forward."
Key Takeaway: Transitioning to a strong management team enables founders to focus on scaling and diversifying their portfolio.
Overcoming Challenges
[53:54] Michael Davidoff: "During our first payroll transition, we faced unexpected issues but managed to resolve them by personally handling check distributions to ensure employees were paid on time."
Michael recounts the challenges faced during operational transitions and the importance of perseverance and hands-on problem-solving to maintain business continuity.
Key Takeaway: Being prepared for operational hiccups and having contingency plans is vital for maintaining trust and stability during growth phases.
Lessons Learned and Recommendations
[86:40] Michael Davidoff: "Having a partner was a game-changer for us. We could carry twice the load and provide mutual support, which accelerated our growth."
Michael advocates for the benefits of having a strong partnership in acquisition entrepreneurship, emphasizing shared responsibilities and support.
Key Takeaway: Partnering with a trusted individual can enhance decision-making, workload management, and overall business growth.
Conclusion and Future Outlook
In just six years, Michael Davidoff and Jonathan have scaled their portfolio from a single $6 million revenue home care agency to a diversified $140 million enterprise. Their strategic use of SBA loans, focus on operational excellence, and strong leadership transitions have been key to their success. As they continue to look for new opportunities, their story serves as an inspiring blueprint for aspiring acquisition entrepreneurs.
Final Quote:
[88:23] Michael Davidoff: "It's been the best thing I've ever done. Despite the challenges, the experience has been amazing, and I highly recommend it to anyone with the drive."
Key Insights
- Strategic Use of SBA Loans: Maximizing leverage with minimal equity dilution accelerates growth potential.
- Operational Efficiency: Digitizing operations and implementing robust systems are critical for scalability.
- Strong Team Dynamics: Building a dedicated and experienced management team supports sustainable growth.
- Resilience and Adaptability: Overcoming operational challenges ensures business continuity and employee trust.
- Partnership Importance: A reliable partner can significantly enhance growth trajectories and operational management.
Notable Quotes
- [03:56] Will Smith: "You were basically on the other side of the table, owning and operating the business."
- [37:14] Michael Davidoff: "We wanted somebody to be able to get their paperwork done sitting on the couch at home."
- [73:13] Michael Davidoff: "We combined the ABA business into the larger platform because all three of these segments are super complementary."
- [77:12] Michael Davidoff: "Putting the right team in place was the best decision we've ever made."
Conclusion
Michael Davidoff's journey underscores the transformative power of strategic acquisitions, effective use of financing tools like SBA loans, and the importance of building a strong operational foundation. His experience offers valuable lessons for entrepreneurs looking to grow their businesses through acquisition, highlighting the balance between cautious groundwork and aggressive expansion.
For more insights and detailed discussions on acquisition entrepreneurship, subscribe to the Acquiring Minds podcast and explore their YouTube channel or sign up for episode summaries at acquiringminds.co.