Great Hill’s investment in Pareto values it upwards of $200 mln

Great Hill Partners’ investment in Pareto Health assigns the manager of employee benefit group captives a total enterprise value north of $200 million, Buyouts has learned.

Confirming an August Buyouts report, Pareto said Wednesday it had completed a recapitalization with the Boston growth equity firm.

Financial terms weren’t disclosed; however, Pareto Founder and CEO Andrew Cavenagh confirmed Wednesday that the investment from Great Hill totaled more than $80 million.

Great Hill and Cavenagh declined to comment on the deal, including its valuation. Sources said the company commanded a total enterprise value within the $200 million to $240 million range.

2019 projected Ebitda, depending on adjustments, lies in the $12 million to $15 million range, sources previously said.

In connection with the transaction, Great Hill has taken a slight majority stake, while Pareto founders have retained a substantial minority investment.

Triple Tree provided financial advice to Pareto on the transaction.

Philadelphia’s Pareto forms and manages employee benefit group captives, allowing self-insuring employers to band together to reduce costs and increase control over their employee benefit programs. The company targets small- and mid-sized employers with 50 to 500 employees that are fully insured, with businesses on average on the lower end of that range.

Pareto has expanded from one client in July 2012 to approximately 800 today, Cavenagh said, growing at about 30 percent to 40 percent annually. The company projects similar growth rates going forward, he added.

“Both the creation and growth of Pareto has been fueled by demand from [small and midsize business] for a better way to both finance health insurance risk and to reduce healthcare costs,” the CEO wrote in an email. “By reducing year-to-year volatility, we make self-insurance palatable or manageable. Once we have created that financial safe space, we provide tools to the employers to reduce the cost of healthcare. The twin prongs of risk mitigation and cost reduction resonates with nearly every employer.

Cavenagh added that Pareto launched the process in May, seeking a PE partner that had significant experience in helping businesses scale and had knowledge of the self-insured employer space.

For Great Hill, the investment adds to its history of investment activity in the employee benefits arena.

That includes existing portfolio holdings Quantum Health, which provides patient care-coordination software, as well as RxBenefits, which provides pharmacy benefits administration solutions. Both Quantum and RxBenefits tailor their services to mid-to-large sized self-insured employer groups.

Great Hill in July closed on its seventh oversubscribed buyout fund at a hard cap of $2.5 billion, surpassing its $2 billion target.

Action Item: Check out Great Hill’s latest Form ADV: