“In today’s market, I’m not going to be naive to think or to say that nothing that happens at the macro level will affect us in the lower-mid market,” explained Buddy Gumina, founder and managing partner of Grant Avenue Capital. “But I will say that lower mid-market healthcare, in and of itself, appears to be more recession-resilient than other healthcare categories.”
Gumina spoke with PE Hub for our ongoing series profiling PE firms that invest in healthcare. He founded Grant Ave in 2019. Previously, he spent nearly 20 years at Apax Equity Partners.
“When we launched Grant Avenue Capital, we developed and religiously implemented our growth playbook, which is based on six core tenets that we focus on immediately with any investment,” he said.
Those six pieces are: human capital; core operational efficiency; tech enablement; strategic sales and marketing; service or product line expansion; and M&A and de novos.
“Even while we’re doing diligence on a company, we will be working with the management team on the playbook’s framework,” said Gumina. “We want to understand and align, from the get-go, on the big levers that we can pull collectively to help the company succeed.”
“If you can do that, then oftentimes you can see substantial results,” he said. “When I step back and look at the overall big picture, I think we’ve, in a relatively short period of time since founding Grant Avenue a little over three years ago, been able to prove that this growth playbook drives meaningful improvements in the kinds of lower mid-market healthcare companies we target.”
One example of that, is the deal the firm did to acquire QHR Health in May of 2021.
“We had been looking in and around a particular kind of outsourced services to healthcare facilities,” said Gumina. “Through our dedicated networking program, we ultimately identified QHR, which was a division of a larger hospital company.”
He explained that the firm leveraged its growth playbook right out of the gate with QHR and pulled the lever of human capital by recruiting a CFO, a chief medical officer, a head of sales and marketing, and a general counsel for the executive leadership team.
“We also identified ways to invest in technology such that the company was not only more efficient internally, but also so that they could find ways to leverage data to help its customers make better decisions,” said Gumina. “Lastly, we pulled our service line expansion lever. QHR had a very small revenue cycle management division, yet this was a natural extension of what they do, in this case, for hospitals. So, we leaned into that immediately. We invested in people, processes and technology, and we’re just getting started.”
Hedging against market volatility
“In addition to driving growth, it is critical to hedge against macro market volatility,” he said.
Gumina went on to explain how in January 2020, Grant Ave closed its first deal when it carved out H2 Health, an outpatient physical therapy business, from a company called ManorCare.
“As you can imagine, we were excited,” he said. “We had our growth plan in place, we were ready to execute on it, and then six weeks later, volumes were down 50 percent due to covid. Now, having invested across a couple of different cycles, including the great recession, a key lesson for me was that if you have guts, capital and the right business plan – you should lean in. That’s exactly what we did at H2. We leaned in when a lot of people were leaning out. We leaned into our playbook and continued to focus on execution. That meant aggressively pursuing M&A and de novos, enhancing human capital, investing in operational opportunities and improvements, and significantly upgrading technology. With that business, we’ve increased clinic count 3x and meaningfully expanded revenue since we bought it, and yet there’s still a ton to do in that fragmented space.”
Opportunities in lower mid-market
“Though many kinds of strategies can be successful, I believe there is an extraordinary opportunity in the lower mid-market and in healthcare specifically,” he said.
“Just think about the near-term healthcare demand dynamics,” he said. “In the next ten years, we expect to go from $4 trillion of healthcare spend in the US to $6 trillion, not to mention the fact that the country will have 15+ million additional people aging into Medicare. With this increase in demand as a backdrop, I believe that the benefit of being a participant in the lower mid-market healthcare space is that there are so many more opportunities to invest in sub-sectors. And when I say opportunities, I do not just mean the raw number of companies in which to invest, but the opportunities for consolidation – to execute a buy-and-build and get really creative.”
Take a thesis-driven approach in home healthcare as an example, as Gumina explained that there are over 8,000 companies just in that subcategory alone, with an opportunity to be “very creative with regard to new delivery models.”
“Firms that provide the first institutional or independent capital in a deal have remarkable flexibility in that environment,” he said. “As I mentioned, all three of the platforms in which we have invested have been carve-outs. In those situations, there were a number of growth levers to pull – that’s the real opportunity. That’s what excites us.”
Gumina has done very large transactions as well as mid-market deals.
“I think what’s interesting is being able to leverage that experience and combine the process, sophistication and approach taken within a very large company and marry it up with the scrappiness and the entrepreneurship of lower mid-market companies,” he said. “By no means to bury them in bureaucracy, but to really bring that level of process, sophistication and approach into their businesses and create a targeted game plan and strategic focus for success.”
Based in New York, Grant Ave was founded in 2019.
Gumina has built a team of 10 professionals, who focus on thematic sourcing with eyes on certain healthcare sub-sectors and have together developed an operational playbook based on six key tenets. Grant Avenue has three platforms: Fortis Health Services, H2 Health and QHR Health, all of which have been proprietary carve-outs that the firm sourced directly. (See more details below.)
The firm has not had any exits. Prior to founding Grant Avenue, Gumina was involved with a number of healthcare investments, including Encompass Home Health (acquired by Cressey & Co, announced August 2007), and Voyager HospiceCare (acquired by Harden Healthcare, announced August 2010).
Grant Ave portfolio highlights:
(Dates refer to initial investment)
Fortis Health Services: A provider of skilled nursing, end of life care, and other related services to patients in home-based setting. (December 2020)
H2 Health: A provider of physical therapy and other rehabilitation services through 85+ clinics and facilities across the United States. (January 2020)
QHR Health: A shared service solutions provider for independent hospitals and health systems nationwide. (May 2021)