Pantheon bullish on consolidation opportunities with fresh USD 2.4bn co-investment vehicle

"Even through we've seen some sub-segments that are still [trading at] 20x EBITDA or more as of Q4 last year, they've tended to be areas where there's a lot of M&A to do," he said. "I think sponsors are leaning into the ability, the visibility and M&A opportunities to really bring down that multiple over time."

An example of this is the wealth management industry, he said, noting the continued fragmented nature of the industry and that there remains a "ton of roll-up opportunities" to execute.

The UK-headquartered GP sees high valuation expectations as "probably the number one consideration on why we might turn down deals," especially in light of recession fears, he said.

"The market in this process still have resetting in valuations. And while we've seen a bigger reset so far in tech, we've not seen as much in some other areas," he said.

Although the GP is taking a cautious stance on the investment environment, some parts of the healthcare industry also remain "reasonably robust" given the stability in the sector, even in a downturn, Miller noted. This is an area where sponsors can feel "reasonably good" about putting money, he said.

Tough environment

The comments come following the USD 2.4bn final close of Pantheon Global Co-Investment Opportunities Fund V in April 2023. The GP was able to secure "a good number of re-ups" from existing LPs, as well as some new LPs to the strategy, he said. Public and corporate pensions feature highly in the new vehicle, although it also saw a "nice increase" from its private wealth base, he added.

LPs committed to the strategy are predominantly from Europe and the US, as well as investors from the Middle East, South America and Asia, he added.

Pantheon was fundraising in what Miller says was a tougher environment than before. "What we're seeing for a lot of people in the industry, including us, is that fundraising takes a little bit longer than it used to," he said, noting that fundraising can in some cases take 18-24 months.

"Folks are in a lot of cases still getting the amount of capital that they want to get, but it's just taking a little bit longer," he added.

Sectors in focus

Pantheon is expected to invest in businesses with EV of USD 2.5bn and below, with a focus on areas such as technology, healthcare, financials, industrials and business services via its co-investment strategy.

PGCO V is expected to spend its initial three-year investment period deploying capital on around 50 investments across growth equity, small and mid-cap co-investment opportunities, of which around 60% is expected to be in the US, 20%-30% in Europe, and the remainder in Asia, he said.

A large majority of PGCO V's deals will involve investing alongside Pantheon's primary managers, he said, noting that Pantheon currently has pre-existing relationships with around 150 private equity firms globally.

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