Onex Corp. ONEX-T plans to put its cash to work targeting acquisitions of founder-owned companies and corporate carve-outs as rising interest rates force the sale of businesses.
Toronto-based Onex, a pioneer in private equity markets, had US$1.1-billion in cash at the end of 2023. In a conference call Friday, president Bobby Le Blanc said higher interest rates are forcing large companies to review their strategies, and investments in divisions that earned decent returns when rates were low are no longer justified.
He said that, for the first time in a decade, Onex sees opportunities to buy businesses through carve-outs and from owners facing succession issues.
“It’s a good market to be a buyer,” Mr. Le Blanc said. “There’s just not a lot of inventory.” In the past, private equity funds frequently acquired businesses from peers. Mr. Le Blanc said activity has slowed over the past year, as sellers are concerned that higher interest rates are depressing the prices of assets.
Onex outperformed public markets in 2022, earning a 3-per-cent return on its private equity portfolio in a year when the benchmark S&P 500 index declined 18 per cent.
On Friday, it reported a US$235-million profit in 2022, down from US$1.4-billion the previous year. In the final three months of the year, Onex earned US$435-million, compared with a US$235-million profit in the same period a year ago. In a news release, founder and chief executive Gerry Schwartz said: “Onex made good progress in a very challenging year for the capital markets.”
Over the past decade, Onex expanded from its roots in private equity into credit markets and managing money for wealthy individuals. The company now has US$34.1-billion of assets under management, up 3 per cent from 2021. Last year, it raised US$2.6-billion for its credit and private equity funds.
Onex also announced succession plans last year, with Mr. Schwartz expected to hand the CEO role to Mr. Le Blanc at the company’s annual meeting in May, while Mr. Schwartz becomes non-executive chair of the company. The transition is contingent on Onex shareholders approving a five-year extension to a multiple voting share agreement that allows Mr. Schwartz to control the company. The share structure was originally set to expire when Mr. Schwartz stepped down as CEO.
Onex is currently raising a new flagship private equity fund, the successor to a US$7.15-billion fund that closed in 2017. In a conference call, Mr. Le Blanc said fundraising continues to be “challenging,” owing to economic issues and relatively large allocations to the sector by clients such as pension plans.
When institutional investors do commit new capital, Mr. Le Blanc said, they tend to patronize the largest, multi-asset fund managers. Onex competes for clients with far larger rivals such as Brookfield Asset Management Ltd. and Blackstone Inc. Mr. Le Blanc said Onex will continue to roll out new private equity and credit strategies to win a larger share of its clients’ capital.