Peloton Capital, led by Ontario Teachers’ alumni, raises initial C$330 mln for debut fund

Emerging manager Peloton Capital Management, founded by two former Ontario Teachers’ Pension Plan principals, raised an initial C$330 million ($250 million) for its first long-term mid-market fund.

The Toronto private equity firm held PCM Fund I’s initial close in March, securing two-thirds of the C$500 million target after three months of fundraising, Managing Partner Steve Faraone told Buyouts.

PCM will now market Fund I to other North American investors, with a particular focus on U.S. institutions, Faraone said. He expects to see a final close later this year or in early 2020.

PCM kicked off fundraising in January, shortly after announcing Fund I’s C$150 million anchor commitment from Stephen Smith, CEO of First National Financial Corp, now the firm’s chair.

The fund has since raised capital from family offices, institutions and wealthy investors, Faraone said. Among them are Canada’s largest banks, including Bank of Montreal, CIBC, Royal Bank of Canada and Toronto-Dominion Bank.

PCM’s doors were opened last November by Faraone and Managing Partner Mike Murray, who served for more than a decade in Ontario Teachers’ direct PE group.

The pair set up PCM to make control-stake acquisitions of mid-market companies in North America’s financial services, healthcare and consumer sectors. Target opportunities will typically have Ebitda of $10 million to $40 million.

Significantly, the strategy features a long horizon, with PCM expected to back portfolio companies for eight to 12 years.

Along with Fund I’s initial close, PCM wrapped up its inaugural deal. The fund invested C$75 million in 123Dentist, a Vancouver-based network of dental practices. Most of PCM’s investment, part of a broader C$425 million financing package, will be deployed upfront. The rest will be made available through an equity line of credit.

Founded in 2011 by CEO Amin Shivji, 123Dentist provides back-office support to dental clinics. Launching a pan-Canadian expansion two years ago, the company currently services more than 70 practices.

Faraone said the platform investment fits PCM’s strategy because 123Dentist is pursuing a buy-and-build strategy in an “attractive, recession-proof space” that is “even more fragmented in Canada than in U.S.”

The deal also leverages the experience and domain knowledge obtained by Faraone and Murray while at Ontario Teachers’.

Faraone, for example, was head of the PE group’s consumer, retail and healthcare team. Among the deals he led was Heartland Dental, acquired by Ontario Teachers’ in 2012 and sold to KKR in 2018.

PCM is steadily adding to its staff, which today totals 10 people, eight of them investment pros. Last year’s recruits included Vice President Sam Kogan, previously a senior associate at Onex Corp.

More recent hires include Partner Mike Scarola, formerly a managing director at RBC Capital Markets, Vice President Blake Bracalenti, formerly a senior associate at Clairvest Group, and Associate James MacVicar, formerly an investment banker at TD Securities.

PCM will make a few more hires, Faraone said, including another at the senior level.

Canada’s hot dental sector

The 123Dentist deal follows last year’s acquisition of Dentalcorp, a Toronto-based network of dental practices, by L Catterton. It was bought from Imperial Capital Group and OPTrust, both of which retained stakes.

Like 123Dentist, Dentalcorp is pursuing an aggressive acquisition strategy. Faraone said high fragmentation in Canada’s dental sector suggests there is “runway for a number of players.”

In late 2018, another PE firm, Equicapita, acquired Shaw Lab Group, a Toronto-based network of dental laboratories.

Action Item: Managing Partner Steve Faraone and PCM’s team can be reached at info@pelotoncapitalmanagement.com.