Grant Avenue clinches first deal, carving out HCR ManorCare units

Marking the recently-formed healthcare firm’s first investment, Grant Avenue Capital has carved out two divisions from HCR ManorCare to create a new physical rehab and medical staffing platform.

The pair of acquired businesses are Heartland Rehabilitation and Milestone, which will operate under the newly created brand, H2 Health, New York-based Grant Avenue told PE Hub.

Guy Sansone, founding partner of Kiawah River Health Partners, has been appointed chairman and CEO of H2 Health and is a minority investor in the new platform.

Financial terms weren’t disclosed, but the total enterprise value of the deal is south of $50 million, a source familiar with the firm told PE Hub.

Heartland Health, which will do business as H2 Health, is a national provider of outpatient physical rehabilitation care. With services including physical, occupational and speech therapy, the business operates more than 60 outpatient facilities across seven states. While a majority of the business comprises freestanding PT clinics, it also operates onsite rehab clinics at large employers.

H2 Health’s MileStone is a per-diem, travel and contract clinical staffing business, serving healthcare providers and facilities.

The two businesses – which will continue to operate independently – generate $50 million to $60 million in combined revenue. Current EBITDA lies south of the firm’s target range of $5 million to $25 million, the firm’s Founder and Managing Partner Buddy Gumina told PE Hub.

Gumina, who launched Grant Avenue in May 2019 nearly two years after departing from Apax Partners, said the acquisitions have been in the works for about 12 months. An agreement to carve out the business was signed in October, he said.

“These obviously were corporate orphans [and] clearly small relative to the size of HCR, but they are really good at what they do,” Gumina said.

Hence, the key to executing carve-outs, and especially those on the small side like H2 Health and MileStone, Gumina said, is making it so it’s “as easy as possible for the seller to execute.” While it might be a logical move for the strategic, corporate divestitures of this size are not always a top priority, he said.

In the case of HCR ManorCare, having buy-in from the CEO, CFO and CTO along with a strategic plan for the business, resonated, Gumina said.

H2 Health, for its part, will seek to grow both through tuck-in M&A as well as through organic efforts – which Gumina said will include an expansion in clinicians, investments in technology to better capture data and outcomes, as well as tools that offer better ways for patients to interact.

Geographically speaking, H2 Health will focus its acquisition strategy east of the Mississippi River, with a near-term pipeline that includes potential opportunities in the southeast, the source close to the firm said.

Other priority areas for investment, Gumina said, include over-the-counter branded products, where Grant Avenue ideally would put together various brands that fit across a theme – such as a certain therapeutic use or chronic condition.

“These businesses are under-marketed and cash cows,” Gumina commented. “We’re working with an executive to map out the category.”

Grant Avenue targets investments in mid-sized companies in North America, predominantly in the US, with the flexibility to make majority or minority investments through control buyouts, buy-and-builds, corporate partnerships, joint-control partnership investments and special situations.

The firm finances its deals through a strategic partnership with backers East Rock Capital and GCM Grosvenor, the firm said in January.

The source close to the firm said Grant Avenue may come to market to fundraise for an inaugural fund as early as 2021.

The firm has also formed the Grant Avenue Foundation, a not-for-profit organization that supports Grant Capital employees and portfolio companies that are involved in healthcare-oriented charitable organizations. A portion of the firm’s net income and carried interest is allocated to the foundation.

Action Item: Get in touch with Grant Avenue’s Gumina at Buddy@grantavecap.com 

Update: This story has been updated to accurately reflect Grant Avenue’s funding source for investments.