Peter Sklar, an analyst at BMO Nesbitt Burns, is sticking to his “outperform” recommendation on Onex Corp., the private equity buyout firm headed by Gerald Schwartz. But forget about that earlier 12-month price target of $44; Mr. Sklar sliced the target to just $35, reflecting the disruption within financial markets which are the lifeblood of buyout firms.
“Currently, three of the four pillars underlying the private equity business are showing red lights (availability of credit markets to fund acquisitions, ability to improve margins and ability to monetize investments in equity markets),” he said in a note to clients.
“The ability to raise third-party capital is still green. However, after the next round of capital raising, private equity firms will be log-jammed with capital they likely will not easily deploy, and the whole process will be backed up with private equity firms being relatively inactive.”
Onex shares traded at $29.84 in Toronto on Wednesday afternoon, down 76 cents or 2.5 per cent. The shares have fallen 28 per cent from their peak last May. The targets of buyout firms are also suffering. BCE Inc., which has agreed to be taken over by private equity groups for $42.75 a share, has rarely approached that price. The shares traded at $35.88 in Toronto, down 82 cents, as concern grows about whether the deal will close at the agreed price.
Mr. Sklar used the same rationale for Onex in a note about Brookfield Asset Management Inc. (disclosure: Market Blog owns the stock). He lowered his 12-month price target to $30 from $40 previously and downgraded his recommendation on the stock to “market perform” from “outperform.”
The shares traded at $27.99 in Toronto, down 83 cents or 2.9 per cent. The shares have fallen more than 40 per cent since last May, although part of the decline is due to the recent spinoff of the company's infrastructure assets into a separate company.
