PCM Fund I was wrapped up in May, exceeding its C$500 million target, managing partners Steve Faraone and Mike Murray told Buyouts.
The vehicle secured commitments from a mix of North American limited partners, among them 20 institutions and family offices. Disclosed LPs include Stephen Smith, CEO of First National Financial Corp – and PCM’s chair – who alongside Canada’s top banks backed an initial C$330 million close in 2019.
Joining them in Fund I’s final close was Investment Management Corp of Ontario. A highly active LP, IMCO in 2020 invested C$1 billion in mid-market buyout pools sponsored by firms like Kohlberg & Company and Morgan Stanley.
PCM’s original objective was to wrap up fundraising last year. This was upset by covid-19’s outbreak, which caused the firm “to hit the pause button” and focus on team-building and doing deals, Faraone said.
PCM made five platform investments, deploying nearly half of committed capital. They include this year’s high-profile acquisition of proxy advisor Glass Lewis. Though terms were not disclosed, Faraone alluded to the $2.3 billion valuation attracted by rival ISS in its 2020 deal with Deutsche Börse, PE Hub reported.
The Glass Lewis acquisition helped put PCM on the map. “You don’t often have the opportunity to acquire a global brand, especially the number-two player in a two-player market,” Faraone said.
PCM’s deal-making proved “a huge accelerant” when it renewed fundraising and “rekindled dialogues” with LPs met prior to the health crisis, Murray said. “It validated what we were saying.”
How PCM invests
Faraone and Murray worked for more than a decade in Ontario Teachers’ private capital group. Faraone, who headed healthcare and consumer investing, and Murray, who headed financial services investing, left in 2018 to launch PCM.
PCM leverages the domain experience obtained by the pair while at Ontario Teachers’. It makes control investments of $25 million to $75 million in services companies in North America’s healthcare, financial and consumer sectors. Target opportunities have EBITDA of $5 million to $40 million.
The firm sources “attractive, recession-resistant” businesses with “a compelling growth thesis,” Murray said. Partnering with founders, it looks for “multiple growth levers,” such as the prospect of building a leader in a fragmented space. For its five platform investments, PCM has closed 100 add-on acquisitions.
Another key aspect of the strategy is a long horizon – something “we saw work well at Ontario Teachers,’” Murray said.
PCM “is not fixed on three-to-five years,” Faraone said, but instead emphasizes “flexibility and optionality” when investing. The approach has met with “a strong reception” among mid-market owner-operators, creating “an important differentiator.”
Along with Glass Lewis, PCM’s recent deals include Edgewood Health Network Canada, a mental health and addiction services provider, and The Fertility Partners, a network of fertility clinics.
Fund I will make another three to four platform investments. It is possible some will involve co-investors, such as IMCO or Stephen Smith, who furnished capital for the Glass Lewis acquisition.
In growth mode
Faraone and Murray oversee a PCM staff of 14, 11 of them investment team members. Supporting them is partner Debra Dobson, hired in 2020 from Danaher Corp, where she was vice president, business development and strategy. Before, Dobson was an associate at EdgeStone Capital Partners.
PCM also has an advisory board chaired by Jim Leech, the former president and CEO of Ontario Teachers’.
With Fund I’s close, the Toronto private equity firm is “definitely in growth mode,” Murray said. In the months ahead, it plans to add investment and operational professionals, including at the senior level.