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Expert Voices: Talking lower market M&A with Grant Avenue's Buddy Gumina

a photo of buddy gumina of grant ave capital next to a collage of circles and glowing health pluses

Illustration: Tiffany Herring/Axios; Photo: Courtesy Grant Ave

While the expense of debt has slowed the pace of leveraged buyouts, the lower middle market has seen a pickup in dealmaking.

  • That's according to Grant Avenue Capital managing partner Buddy Gumina. He spoke to Axios recently about M&A opportunities in that market.

This interview was lightly edited for length, style and clarity.

How does Grant Avenue differentiate its approach when it comes to carve-outs?

  • We consistently give the seller a price and a timeline, and then hit the price and beat the timeline. That is why we have completed seven carve-outs in the past few years.
  • We work with seasoned operating executives to move smoothly through the diligence process while being flexible and cooperative. This approach has created credibility and reference ability for future transaction sourcing.
  • By definition, carve-outs have been noncore to their parent companies, with limited capital investment. By leveraging our Grant Avenue growth playbook, we focus on key initiatives to drive value immediately post-carve-out

What subsectors of health care are you most excited about?

  • While we do not expect to invest in hospitals, skilled nursing facilities, or other heavy facility-based businesses, we are bullish on investing in tech-enabled organizations that are strong outsourced partners to those kinds of businesses.
  • When we carved out Ovation Healthcare, we were targeting an opportunity around outsourced services to hospitals, and we networked to this division within Quorum Health, a hospital operator.
  • In addition, we target sectors that provide outstanding patient care but also reduce overall health care costs. To that end, we carved out a physical therapy business from a large skilled nursing provider.
  • In assessing a sector, we use our "core four" framework: 1) Are there strong sector tailwinds; 2) are there meaningful market fragmentation; 3) Can we partner with a seasoned sector executive; and 4) are there exit multiple arbitrage?

How are you navigating financing headwinds?

  • Firstly, lower-middle market health care remains a resilient sector. Also, our deal flow has been less impacted by debt market volatility because we've historically been very conservative on leverage; in fact, three of our four platforms started with no leverage.
  • We are reasonably good at math and understand that, on the surface, leverage in a buyout mathematically could have a positive impact. However, we believe that implementing our growth playbook early in a deal, which involves investing in areas like human capital, technology, and standing up an M&A tuck-in program, will have a bigger impact on equity value creation over time when compared to initial financial engineering.

🍔 One fun thing: What is your favorite NYC restaurant?

  • My wife and I enjoy having dinner at the bar at Gramercy Tavern. It's a great restaurant, but it's also a fun ambience that we love.
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