GP Profile: Bregal Milestone explores generative AI opportunities for portfolio companies

The GP has so far held several discussions on artificial intelligence (AI) with the managers of its portfolio companies, bringing them together for workshops and running individual projects for certain portfolio companies, he said.

"Each of our portfolio companies is engaging with generative AI and large language model-enabled co-pilots in in the software development process to considerably increase their development capacity," he said.

Among the promising starts is Odilo, a learning platform serving the education and corporate sectors, which is "very forward leaning in their use of AI and well placed to benefit from its use", he said, declining to elaborate further.

Bregal has long since been exploiting the use of AI internally, he said, pointing to the use of its own proprietary data engine "Beehive" for originating new businesses, he said. The system looks for lead signals, both in structured data including employee accounts or financial data, and also unstructured data like web mentions, press releases, product announcements, management changes, among others, he added.

Software growth

The increasing attention on machine learning comes alongside the London-headquartered GP's fundraising completion of its second fund, which saw it secure EUR 770m in commitments last month. LPs include asset managers, family offices, funds-of-funds, and pension plans, according to a statement issued at the time.

Five platform investments have already been made so far, with around seven more companies expected, he said.

Bregal is deploying at a time when transaction volumes and valuation levels are comparable to 2018-2020, which he believes is providing a "highly attractive opportunity set", he said.

"While the growth in the European economy is anaemic and expected to be very low this year and next, the trends and the forecasts that we see in software spending in Europe are quite different," he said. "What we see is a structural trend of high single digit growth."

Bregal Milestone typically targets growth companies including software, technology-enabled services, data infrastructure, healthcare IT and services, financial technology and internet-related consumer groups, according to its website.

Targets generally have several hundred employees, a diversified customer base, strong product market fit, and in most cases have achieved profitability, or have a very credible near-term path to profitability, he said.

"We don't focus on a formulaic threshold size for portfolio companies because we believe that disregards some of the idiosyncrasies that different companies may have. We focus on growth potential and capital efficiency," he said.

Driving value

During its holding period, Bregal typically seeks to help its companies expand across Europe, the US and in other markets, which helps differentiate its investments from regional peers, he said.

Operationally, it can help companies to inject talent and instil best practices. This includes, for example, initiatives related to sales efficiency, AI, or ESG and sustainability.

Bolt-ons will also be a focal point, he said, pointing to three of Fund II portfolio companies which have already made acquisitions, he said. "In this market, that's a very attractive growth driver," he noted.

On exits, Bruennler noted that Bregal will "continue to monitor opportunities to create further exits" from its first fund over the next 12-18 months. "Several portfolio companies in our first fund have generated very strong interest from potential trade and sponsor buyers," he said.

Portfolio companies currently being prepared for exit Finnish employee benefit platform Epassi, as reported by sister publication Mergermarket. Additionally, Anywhere365, a Dutch cloud-based contact centre and dialogue-management platform, is expected to come to market via Lazard, as reported.

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