OMERS turns in solid buyout return in last year’s rocky market

In a 2022 market that cooled-off private equity performance, OMERS’ buyout portfolio generated a solid return, sources told Buyouts.

OMERS Private Equity’s direct buyout investments last year earned a 17.4 percent net IRR, sources said. That puts performance at the upper end of the portfolio’s historical net IRR range of 14 percent to 18 percent.

In February, OMERS reported its PE investments turned in a 13.7 percent net IRR in 2022, beating the benchmark. That composite number, however, includes direct growth equity and venture capital investments.

PE fund performance softened last year as economic uncertainty and volatility – spawned by high inflation and interest rate hikes – replaced the buoyant spirits of 2021 and prior years, Pitchbook reported in January. Returns are generally expected to remain muted in the near-term.

In its 2022 annual report, OMERS attributed its overall PE performance to “organic growth in our portfolio EBITDA, coupled with our accretive M&A activities.” In the case of direct buyout investments, the return perhaps also owes to one or more timely exits.

Early in the year, OMERS sold its majority stake in Forefront Dermatology, a practice-management services provider to dermatology clinics, to Partners Group. The deal’s value was $1.5 billion, Axios reported, implying a 15x-plus multiple.

And last November, OMERS said it was negotiating with EQT Infrastructure for the sale of a majority stake in Trescal, a regulated calibration services provider. The deal, expected to close in Q1 2023, was valued at about $1.5 billion, Bloomberg reported.

OMERS elected to reinvest as a minority owner in both Forefront and Trescal. Its other 2022 deals included several new acquisitions.

They included Medical Knowledge Group, a pharma commercialization services platform; Network Plus, a utility and infrastructure services company; NovaSource, a solar operations and maintenance business; and Pueblo, a regional commercial HVAC services provider.

The C$124 billion ($91 billion) OMERS was one of the first pension systems to embrace direct PE investing. Unique in the institutional community, the strategy is today focused on making solo investments. Target sectors are business services, healthcare, industrials and software.

PE portfolio assets increased to C$23.2 billion in 2022 from C$19.8 billion a year earlier, according to the annual report. Private equity now makes up 18 percent of all OMERS assets.

OMERS Private Equity is led by Michael Graham, global head of private equity. Appointed in 2020, Graham was previously head of the North American direct buyout team. That job was taken last year with the promotion of Eric Haley, Buyouts reported.

OMERS declined to provide a comment on this story.