Onex Corp. 's decision to sell Husky International Ltd. to Berkshire Partners LLC and OMERS Private Equity Inc. comes as experts say conditions are ripe for a series of deals between private equity players.
Berkshire and OMERS are picking up Bolton, Ont.-based Husky for $2.1-billion less than four years after Onex bought it, in December 2007, with an equity investment of about $622-million. Husky, which has manufacturing plants in Canada, the U.S., Luxembourg and China, makes injection moulding machines that are used by the plastics industry in the production of bottles, food containers and medical devices.
The deal comes at the front end of what many private equity players expect to be a new wave of M&A activity, spurred by more free-flowing bank loans and more certainty about the direction of the economy.
"Now that the valuations are up, you're seeing a lot more transactional activity, maybe even in the secondary market where one private-equity fund sells to another private-equity fund," Paul Renaud, chief executive officer of OMERS Private Equity, said in an interview earlier this year.
A transatlantic private equity survey released Tuesday by merger market and investment bank Duff & Phelps found that expectations are high for the coming year, with more than half of the North American private equity firms surveyed saying they expect returns of 20 per cent or more. They cited better credit markets and record levels of cash reserves as factors for their optimism.
Bain & Company's recently released 2011 private equity report predicted that so-called secondary buyouts, where private equity funds buy companies from one another, will be popular this year.
It is generally faster for a private equity fund to sell a business to another fund than it is to hold an initial public offering or sell a business to a rival in its industry. And, after three decades of deal-making, there are more private equity-owned businesses up for grabs, Bains & Co. said. Many of these companies, especially those with steady, predictable cash flows, are better off in private hands, it added.
Onex said that when the deal for Husky closes, likely in the third quarter, it will receive net proceeds of $1.8-billion, resulting in a multiple of its invested capital of roughly 2.9 times and a 36 per cent rate of return.
"In just over three years, Husky's operating profit has more than doubled as a result of its successful transformation plan," Onex managing director Anthony Munk stated in a press release.
Husky's management team, including CEO John Galt, is expected to stay on and to hold a significant investment in the company.
OMERS intends to continue to be a buyer as M&A activity picks up in the private equity market. Earlier this year, OMERS CEO Michael Nobrega said in an interview that the pension fund manager will be looking to deploy about $20-billion into private investments - including infrastructure, real estate and private equity - over the next five years as it seeks to decrease its sensitivity to fluctuations in stocks and bonds.