GHO holds EUR 2bn final close for third fund

The fund exceeded its EUR 1.25bn target and was registered in May 2021, according to Unquote Data.

Charles Cox, managing director and head of investor relations at GHO, told Unquote that the fundraise ran roughly from February 2021 to May 2021, with some preparation work before and customary legal processes afterwards.

The GP built on its existing relationships for the virtual fundraise. "One of the aspects of much fundraising being fully virtual is that LPs have pivoted to known and trusted relationships, which has meant a lot of re-upping," he said. "Where they are making new investments, it tends to be with managers they have built up a relationship with. A lot of our preparation for Fund III was done after meetings we had had for Fund I and Fund II, so we had already met a lot of the teams or institutions who have come in for Fund III."

Adapting LP due diligence to a virtual format presented both opportunities and challenges, Cox told Unquote. "The LP due diligence was done virtually, through 30 minute to one hour slots with people cycling from meeting to meeting, allowing LPs to meet partner, principals, VPs, associates and analysts, doing operational and ESG due diligence. So we could ensure than an LP or team of LPs had met everyone they want and need to meet, or ask questions to. It can be taxing for the people involved but these processes were very efficient for a period of time."

However, the virtual fundraise was ultimately an opportunity for the firm to show its strengths, Cox said. "GHO is known for the strength and depth of its team and organisation, from investment through operations, and, through a virtual raise, we had a great opportunity to showcase that."

Cox expects that the industry will continue to take advantage of some of the efficiencies brought by virtual meetings in future, given that such processes can free up time for continued investment work. "There is a broader cultural dynamic at play now and we see a balance of virtual and in-person [meetings]. We have a lot of respect for the efficiency of virtual due diligence, as you can get a lot done in a shorter period of time, without losing focus on origination and value creation in the portfolio."

Nevertheless, in-person meetings will continue to be key, he added. "Removing large amounts of travel from calendars is a major benefit to the firm; however, PE is a people-focused business, so to build those trusted relationships between individuals and institutions, you need the in-person element."

Kirkland & Ellis provided legal advice on the fundraise, while Rede Partners was placement agent.

GHO Capital II held a final close in November 2019 on EUR 975m, surpassing its EUR 800m target.

The GP has steadily grown its team since January 2020, appointing 12 new team members, including two operating partners and six investment professionals.

The firm is headquartered in London and was founded in 2014. The firm's 2015-vintage debut fund attracted capital commitments of EUR 660m. The firm had a team of 10 at the time of the final close in November 2016; GHO now has a team of around 35 people, headed by six partners.

Investors
Of Fund III's LP base, around 30-35% of LPs are from North America, with 45-50% from Europe, and the remainder from the rest of the world. The Los Angeles County Employees' Retirement Association (LACERA) has committed EUR 100m to the fund.

There has not been a significant change in the geographical make-up of the fund's LP base, Cox said. GHO Capital I's LP base was composed of around a third each of North American, European and global LPs. Fund II had around 50% of its LP base in Europe, with 30% in North America and 20% from the rest of the world.

GHO Capital II drew commitments from 30 LPs, including pension funds, sovereign wealth funds, asset managers, insurance companies, funds-of-funds and family offices. GHO III is backed by around 50 LPs in total. One quarter of these are insurance funds, one quarter are pension funds, and a further quarter are funds-of-funds. Just less than 10% of the fund's LP base are sovereign wealth funds, while the remainder of the LPs are family offices and foundations.

GHO Capital III has a strong re-up rate, Cox told Unquote; more than EUR 975m of the fund's capital commitments are from LPs who backed the GP's first and second funds, meeting the total capital raised for Fund II.

Investments
GHO invests in pharmaceutical, medtech and outsourced services businesses operating in the healthcare sector.

GHO has 14 portfolio companies across its two previous funds and has made 34 add-ons for these businesses. GHO Capital I made eight investments, while GHO Capital II has made seven, with one further platform deal to be announced. Given its increased size, GHO III expects to make 10-14 platform investments.

GHO's debut fund deployed equity tickets in the EUR 50m-100m range. GHO Capital II had an equity ticket sweet spot of EUR 75m-100m and, while GHO Capital III will also be able to deploy in this sweet spot for deals with enterprise values of EUR 100m-400m, the fund can back deals of up to EUR 1bn with additional co-investment capital for particularly attractive opportunities.

GHO has made 34 add-ons for its existing portfolio and has refined its add-on strategy over the course of its two previous funds. "The add-ons have become more impactful, larger and executed faster in Fund II than Fund I – you can expect more of the same in Fund III," Cox told Unquote. "Our strategy is largely around developing strategic footprints with our businesses by way of internationalisation, adding products and services adjacencies, and new technologies and operational capabilities. Strategic add-ons have proven a very effective and expeditious method of realising value across several of those objectives."

The GP expects to make a couple of deals over the summer and into autumn, Cox said. "We have some priority targets, and have a plethora of opportunities. Our role as a specialist is to find the best management teams to partner with, identify where we can really add value, and leverage our global networks to drive thesis development. Healthcare is a broad and multidisciplinary universe; as a specialist you have a slight head start in addressing the inherent challenges that creates."

The GP has steadily grown its deal pipeline over a number of years, focusing on selected sub-sectors. "A lot of the deals in our pipeline have been in the works for a very long period of time – often years," Cox said. "We spend a lot of time developing thematics to identify these companies from the bottom up. We target sub-sectors where we see structural and sustainable growth that is above the baseline of global healthcare markets."

This baseline growth is key to GHO's investment thesis, as Cox explained: "If you consider baseline growth in healthcare at around 5% per annum, then we look for an accelerated 10% growth in the specialist sub-sectors where we can add value. Globally there is insatiable demand for healthcare from well-understood demographic drivers – we look to invest in themes that can sustainably address that demand without increasing overall end costs." The GP's motto of "better, faster and more accessible healthcare" lies in this goal, Cox said.

People
GHO Capital Partners – Charles Cox (managing director, head of investor relations); Alan MacKay, Mike Mortimer, Andrea Ponti (managing partners, founders); Edward de Nor, Mike Turner, Ken Eichmann (partners); David Miller, Geoffrey Hamilton-Fairley (operating partners).

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