Gerry Schwartz's private equity giant Onex Corp. wants to do deals, but it's facing a tepid market. So, for now, the big focus will be on growing businesses the firm has recently acquired.
At the company's annual investor day Thursday, executives discussed changes in the private equity space over the last few decades, noting there is a lot more money in the marketplace chasing transactions today than there was when the company was started, and players are willing to take lower prices to deploy their capital.
"There are very few opportunities for a true proprietary transactions," said Bobby Le Blanc in response to an investor question as to why private equity returns are lower today than there were a decade ago.
Onex is coming off a first-quarter profit dip and finding fewer buys in the market. In the fourth quarter of last year, the company invested $1.5-billion in five businesses, but the flow of acquisitions was stemmed in the first quarter of 2013 as the business picked up just one new company -- trade show operator Nielsen Holdings NV.
And it wasn't just on the mega-deals where opportunities were scarce.
Mr. Michael Lay, managing partner at Onex's mid-market private equity business, Oncap, also said it's a tough time to acquire. Many private businesses the group has pursued have owners who believe strength is returning to the equity markets and are reluctant to sell. "Or, a number of them have said 'I'm comfortable with my business, I know it, if you guys write me a cheque I don't know what I'd do with it,'" he said. Oncap seeks to buy North American-based businesses worth about $100-million.
He's hopeful that the deals may pick up, but Mr. Lay said it may be a good time to sell, and he'd consider exiting one or two businesses in the latter part of the year .
One of the areas that Onex does expect to see a pickup in the pulse of deals is in Europe, coming out of the firm's new London office, which has been open for less than a year. "Guys there are meeting contacts and counterparts to all of the banks we have good relationships with here in North America," said Seth Mersky, one of the firm's senior managing directors. The plan is to take advantage of the good standing Onex has in North American markets in Europe, he said, adding that Onex isn't looking to reinvent itself.
Those employees are hunting in Europe for acquisitions like German plastics machinery company KraussMaffei Technologies, which Onex bought last year. It played well off of the experience Onex gained from owning another plastics business, Husky International, which it sold in 2011.
In the first half of the investor day session, the company dedicated a lot of time to the recent investments, including a U.S. insurance broker business USI, and packaging and graphics company SGS International Inc. Onex bought those two for $2.3-billion and $813-million respectively late last year.
Mr. Mersky said the firm would be busy over the next year launching new collateralized loan obligations in its credit partners group, integrating its recently acquired purchases and, hopefully, making new acquisitions. He also said the company would continue to buy back shares, make more co-investments with other companies and maybe even add to its staff.
While Onex recently increased its dividend for the first time in 11 years, Mr. Schwartz said that the company would continue to pursue share buybacks as a way to return capital to shareholders, rather than seek to raise the dividend again any time soon.
(Jacqueline Nelson is a Globe and Mail Financial Services Reporter.)
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