Two large initial public offerings are coming from Onex Corp., OCX-T as the private equity firm cashes in on winning investments and sets itself up for a dominant role in the next wave of North American buyouts.
Over the next few months, Onex is expected to sell stakes in Husky Injection Molding Systems – the total value of the company is expected to be more than $1.3-billion (U.S.) – and The Warranty Group, a Chicago-based company that is expected to be worth at least $1-billion.
The offerings represent the end of a long IPO drought, as private equity funds prepare to cash in on their holdings by listing a series of companies on the Toronto Stock Exchange.
Coming months are expected to see a range of initial public offerings – everything from airlines to wireless infrastructure companies are lined up – after a period that saw debuts dry up for much of 2009, with only two Toronto Stock Exchange IPOs worth a total of $950-million in the most recent quarter.
Onex executives said in a conference call last week that they plan at least two IPOs in 2010. Executives for the Toronto-based company were unavailable for comment late last week, due to an offsite meeting. Sources close to the company said Husky and The Warranty Group are ready for their debuts.
These are two low-profile companies that Onex helped build into dominant players in obscure, even boring sectors. Bolton, Ont.-based Husky makes equipment for the plastics industry, including moulds for bottles, and was purchased from its founder for $622-million in December, 2007, with Onex committing $225-million of its own cash. In a recent report, BMO Nesbitt Burns analyst Peter Sklar said: “We believe Husky should be attributed a multiple greater than some of the comparable companies due to its position as the global market leader for its products.”
The Warranty Group was acquired for $466-million in 2006, with Onex putting up $154-million; the company specializes in selling extended warranties on consumer goods, such as big-screen TVs and home appliances. Husky is expected to list on both the Toronto and New York stock exchanges, while The Warranty Group is only expected to trade on the NYSE.
Cash from these two IPOs should make founder Gerry Schwartz and his team one of North America's dominant private equity players. Toronto-based Onex is already flush – the company has no debt, $900-million (Canadian) of cash in its coffers and access to $3.7-billion (U.S.) of capital from outside investors. Where other buyout firms still nurse hangovers from the credit crunch, including sickly companies in their portfolios, Onex has never been stronger. Its stock has outperformed publicly traded U.S. peers such as Blackstone Group and Fortress Investment Group.
The past 12 months have been among the quietest in Onex's 25-year history, with no major acquisitions, but Mr. Schwartz said last week that the team is currently “looking at a couple of larger things.” He said in a conference call at least one potential acquisition would see the Canadian company partner with another private equity fund.
One likely target is AIG unit International Lease Finance Corp., an aircraft leasing company that could fetch more than $4-billion. Onex has reportedly teamed up with Greenbriar Equity Group, a fund focused on the transportation sector, to bid on ILFC.
“Onex has said that ILFC is of interest,” said RBC Dominion Securities analyst Nick Morton in a report on Friday. He added that after a lengthy drought, banks are once again willing to make the loans that fuel deals by Onex and other private equity funds. “Credit is becoming more available for mid-sized leveraged buyouts and interest rates are low.”
There's a tension that comes with veteran financiers such as the Onex CEO deciding to sell companies, and public market investors being asked to buy. Mr. Morton pointed out that the private equity executives are far more pessimistic about markets than most investors.
“Gerry Schwartz continues to see a potential disconnect between the economy and stock markets, a view shared by the CEOs of alternative investment firms Blackstone Group and Fortress Investment,” Mr. Morton said. “Buoyant stock markets have allowed private equity to use IPOs as a strategy to raise capital for ‘portfolio' companies.”
