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Here's a made-on-Bay-Street scene curiously reminiscent of that recent Vanity Fair poolside photo shoot of the cast of ABC's Desperate Housewives, which infamously degenerated into a spectacular publicists' cat fight.

Buyout king Gerry Schwartz, smartly dressed in a pale blue dress shirt, a moss-green silk tie and a watch that must have cost a small fortune, stands grim-faced beneath a thundercloud of disapproval as Jane Shapiro, his tiny, peripatetic public relations adviser, buzzes around. She's ever-so-gently persuading her client that his idea for the photo shoot to accompany this story isn't going to fly. He'd wanted to be seen huddled at the boardroom table surrounded by his team of tie-free deal geniuses, studying paperwork.

Onex Corp., the 21-year-old private equity giant known for making billions on sharp-eyed investments like Celestica Inc., and missing out on big-game prey like Air Canada, is doing some serious image engineering these days. Schwartz has hired PR powerhouse Fleishman-Hillard to get the word out that Onex, contrary to perceptions on Bay Street and beyond, is a "team" (see "The spin doctors' prescription," page 27) whose hitherto anonymous and highly secretive partners deserve to share the limelight with the founder and his wife, Heather Reisman, and to own a piece of the couple's glittering lifestyle.

It's a formidable makeover job. The widely held consensus is still that Schwartz and Onex are indistinguishable. "Gerry Schwartz is a brand," says Julie Rusciolelli, president of Toronto-based Maverick Public Relations. "It doesn't matter what the name of the company is." The Onex calling card, she adds, "doesn't speak to me." If anyone needs to be reminded of who the top dog is, Schwartz's often-fat annual pay package totalled more than $76 million last year, most of it stock option gains (see "50 top-paid executives," page 81).

So, a skeptic could reasonably ask, has anything really changed? Well, there has been a lot of investment action over the past year. Onex off-loaded some of its underperforming assets and netted $135 million in after-tax gains from its sale of the Loews movie theatre chain. Onex's shares have outperformed the Standard & Poor's 500 Index since December, 2003, and the company reported an impressive $721 million in earnings for the first quarter of 2005. Onex's vaults are also filled with $1.5 billion in cash, and more deals are presumably in the works. One private real estate fund has been launched, and another will follow soon. There is also a new $400-million public markets group, and plans for a fund specializing in the "distressed debt" of struggling companies.

Okay, Kohlberg, Kravis, Roberts & Co. (KKR) and Bain Capital, two U.S. private equity goliaths working with Canadian partners, beat Onex on some recent blockbuster buyouts--Bain's $2-billion purchase of SuperPages phone directories (recently resold for a $550-million profit), plus deals for Shoppers Drug Mart and Bombardier Recreational Products. But Schwartz insists he never loses sleep over the ones that got away. As Andrew Sheiner, a nine-year partner at Onex, puts it, "another bus always comes along." That bus turned out to be a freight train in the form of the U.S. health-care industry. Starting in January, 2004, Onex Partners LP, the company's $2.2-billion private equity fund, made four quick investments in mental health hospitals, ambulance services, diagnostic equipment and group homes. The total: $571 million. Then, this past February, came the first blockbuster deal in years: Onex announced it would buy Boeing Co.'s three commercial aircraft parts plants in Kansas and Oklahoma for $1.5 billion. Apart from that, and Onex's 100% control of the Cineplex Galaxy movie chain, Schwartz says that he's happy to be dealing in low-profile companies (though, in the past, he's bemoaned the lack of a Canadian blockbuster). "When we owned Purolator," he explains, "a week never went by that someone didn't call me to complain that their wedding gown hadn't arrived or of some other disaster that wasn't my fault."

In May, Onex did some profit-taking and netted $42.5 million by selling half of the controlling block of shares in Maryland-based Magellan Health Services, which it bought in 1993. That move is also a sign of Schwartz's bearish instincts lately: At Onex's AGM in May, he predicted a looming collapse in equity markets (18 months out) and detailed the company's countercyclical strategy for the new distressed-debt fund.

Bottom line: The buzz on Onex has improved, although big-game investments remain elusive. "Results matter," says a Bay Street insider and Onex fan. "The results speak for themselves." Jim Leech, senior vice-president of the Teachers' Merchant Bank, the private equity arm of the Ontario Teachers' Pension Plan, one of the few large Canadian private equity funds, is also impressed. "As a competitor, I never wrote them off," he says. "They haven't stubbed their toes on many transactions."

This is why the new PR emphasis on team play is at first a puzzle. It's like Wayne Gretzky reminding sportswriters that he had speedy wingers and sharpshooters on the blue line. There's a measure of truth behind the spin, however. In the early days, Schwartz drove the deals, did the due diligence and hit up the institutions for debt financing. He overshadowed the underlings. But Onex has evolved. Take the pivotal 1996 purchase of Celestica, IBM Corp.'s manufacturing arm. "Celestica was [Onex veteran]Anthony Melman," says Doug Brent, former head of BT Capital Partners, which helped finance the deal. "Onex is a team. It's not an individual, no way." Though Schwartz remains Onex's chief rainmaker, he now plays the role of the wily, aging professor surrounded by ambitious grad students.

Other Bay Streeters point out that Onex has tended to seek out publicity only for strategic reasons, such as when there's a big deal on the table. They speculate that, this time, Onex may still be trying to counter the widespread impression that it has let the big U.S. private equity firms eat off its own plate recently.

If you ask around Bay Street for an explanation of how Onex works, however, you often get a shrug. "They're very closed-lipped. Very," says a venture capitalist who's given up pumping friends inside Onex for information. Like Conrad Black, Schwartz lives a lavish and public life, and surrounds himself with the rich and famous, including Prime Minister Paul Martin, buyout giant Henry Kravis and movie types. He has long-standing ties to the Bank of Nova Scotia (former chairman and CEO Peter Godsoe sits on the Onex board) and many other financial institutions on both sides of the border.

Even in the post-Enron era, however, the 10-member Onex board remains a pretty closed shop. Besides Schwartz, four directors have been there since Onex started in 1983. Reisman joined the board in 2003. The three independents include Torstar CEO and Liberal heavyweight Robert Prichard. Onex's stable of 11 managing directors and various underlings includes veterans of Lazard Frères and Berkshire Hathaway and several McKinsey & Co. alumni, as well as former Scotiabank executive Seth Mersky, Peter Munk's son Anthony (who spearheaded the Loews deal), and lawyer Nigel Wright, a onetime speech writer for Brian Mulroney. Just two are women, however.

The team works insane hours and travel relentlessly. In 2003, Sheiner clocked eight solid months on the road, drumming up the financing for the Onex Partners LP fund, and he's bracing to repeat that next year for OP II. Each partner interviews prospective employees to see if there's chemistry as well as credentials. New hires become so steeped in Onex's style, and so heavily vested in the shares of Onex and its subsidiaries, that few ever leave. As one rival private equity fund manager says, "These are the guys you'd want by definition. [But]you'd have to pay a fortune to bail them out of their [ownership]plans."

Beyond the lavish compensation, however, Schwartz has cultivated a Jesuit-like intellectual climate inside Onex's hushed 49th-floor offices in Toronto's BCE Place. There are faux-French windows overlooking Lake Ontario, ornate fireplaces, an impressive collection of pop art and lots of antique Americana. The boardrooms each have an American and Canadian flag.

The whole firm meets by phone or in person on Mondays at noon to debate the "thesis" behind potential investments. They look seriously at over 100 possible deals a year, but only consummate a handful. Sitting at the head of the table, of course, is Schwartz: "I'm helping to guide what they're looking at. I'm coaching, I'm the in-house cynic, so I get to question the things they're doing. I'm also the cheerleader: 'Have courage, don't be afraid to look at that.'" He says the team votes on any investment. "We have enough respect for each other that if it's seven to five, we won't do it. If we have five smart people against [a proposed deal] that's worth listening to."

The typical Onex deal is shepherded along by a pair of partners, plus a couple of associates to do the grunt work, and a supporting cast of lawyers, accountants and other technical consultants on retainers. The partners always end up holding some seats on the boards of the companies Onex acquires. For all the deliberation, there's never been much pattern to what Onex does. Take the push into U.S. health care. Bobby Le Blanc, a New York-based partner who came over from Berkshire Hathaway, says Onex has no plans to integrate its four assets. Onex got into the sector because it is growing fast and there's a lot of outsourcing being done. "It behooves us to be in that space," he says, but adds that this is strictly a U.S. play for now. He hasn't come across any attractive Canadian health-care firms, but he admits that he hasn't been looking either.

The acquisition of Boeing's Kansas and Oklahoma plants, meanwhile, is a textbook example of an Onex "carve-out." The firm cleaves off a manufacturing division from a company on an outsourcing drive, then tries to cut costs and find new customers. Schwartz eschews a sectoral approach, though. In addition to the health-care interests, other recent purchases include a French seismic instrument manufacturer and a cosmetics company.

Private equity investors and analysts are divided on the Boeing deal. "This is like Celestica in another industry," says Sam Duboc, who runs Edgestone Capital, Canada's next-largest independent private equity firm. "These are plays where you need a strong view of what you can do with the asset." However, Ramy Elitzur, a professor and private equity expert at the University of Toronto's Rotman School of Management, doubts Onex will be able to drum up new customers. "It makes absolutely no sense," he says. "Boeing is getting out of manufacturing in the U.S."

The deal dates back to April, 2004, when Seth Mersky, a Delaware-born partner who jumped from Scotiabank to Onex in 1997, saw a story in The Wall Street Journal about Boeing's plans to sell the division. Mersky called a contact at Goldman Sachs, Boeing's merchant banker. Other private-equity players and another airplane firm were also bidding for the 9,000-employee division.

Onex is also more than familiar with the airline industry. Long before it failed to engineer a $5.7-billion Air Canada-Canadian Airlines merger in 1999, the company made a killing by acquiring American Airlines' catering operation, Sky Chefs, in 1986. Onex sold 25% of the much-enlarged business to Lufthansa in 1993, and the rest in pieces over the next eight years. Onex's approach is to study, wait, then pounce. Mersky says Onex was tracking the aircraft industry. In 2003 and 2004, two years after the post-9/11 collapse, "we felt the aircraft production cycle was near its low ebb," he explains. Boeing had excellent technology, but a lot of excess manufacturing capacity and high costs.

Mersky persuaded his Onex colleagues that the operation could capitalize on burgeoning demand in India and China. He also felt that Boeing's decision to sell showed that the airplane industry was on the verge of a major restructuring, akin to the auto industry in the late 1980s, when vehicle makers vacated the parts business. At that time, Onex invested in auto parts makers like JL French. The Boeing deal seemed like déjà vu, "a classic outsourcing thesis," as Mersky puts it. Air Canada's $600-million order in April for a fleet of Boeing jets vindicated his argument.

Schwartz's role was to fly to Wichita, Kan., last November to romance Boeing's brass. Then he fired off a memo to Mersky and Nigel Wright, the other partner on the deal--21/2 pages of single-spaced questions they had to answer before a dime changed hands. As Wright says, "We've had 140 acquisitions at Onex. He's seen issues arise in a lot of different contexts." Since last summer, Mersky and Wright, plus two associates, have clocked thousands more hours in Wichita and Tulsa, working through details of what Wright refers to as an operation to separate conjoined twins. "I feel like I live there," he sighs.

Internally, the top-secret transaction was known as "Project Wind." The plan is to cut overhead and labour costs, then win new orders from the likes of Raytheon and Airbus, as well as supply more to Boeing. That involves everything from tricky negotiations over intellectual property agreements, to establishing new finance, IT and HR operations, to transforming former Boeing managers into Onex executives.

For all of Onex's soothing talk about partnerships with acquired companies, there's no doubt about who calls the shots. Le Blanc is lead director of Magellan's board, and the hard-driving management team--two former Prudential Health Care executives--has slashed costs and moved into new markets. Onex doesn't balk at staring down unions either, which they're doing now with the Boeing deal. (In April, Schwartz hired former U.S. Democratic congressional leader and presidential aspirant Richard Gephardt to mediate.) "They're not known as warm and cuddly people," says one Bay Street rival. "If they're involved, they own you."

And for all the upbeat team talk, Schwartz still has 67.6% voting control of Onex through multiple-voting shares. That, of course, raises the highly delicate question of succession. Schwartz is 63. Last winter, one of the original New York buyout firms, Forstmann Little, folded its cards when founder Ted Forstmann decided to retire. "That should be a warning," says a private equity manager.

Unlike the institutionalized private equity funds in Europe, most of the dozen leading private buyout funds in North America are almost cultishly identified with their founders, including Henry Kravis of KKR and Milt Romney of Bain Capital. Onex clearly falls into that cowboy camp, even though it is unusual among those firms in that it is publicly traded.

But Jim Collins's oft-cited book, Good to Great, argues that the most successful corporations are run by faceless executives. Toronto communications expert Julie Rusciolelli cites the dashing former Bank of Montreal chair, Matthew Barrett, and Corel's extravagant founder, Michael Cowpland, as examples of how corporate personification backfired and undermined the brand. Loblaws worked for years to move beyond its brand association with Dave Nichol.

Analysts and rivals suspect that Onex's latest image-making project encompasses all these elements in preparation for the post-Schwartz era: building brand equity, boosting the visibility of the management team and positioning them to deal directly with financial institutions and the media. "If I had to guess," says one source, "their PR isn't going to be Gerry, Gerry, Gerry." For the record, Schwartz insists he's not planning to retire soon, but he adds that grooming the next generation is a priority. "Succession is already taking place at Onex. There's a team of people who'd carry on flawlessly without me. It's very collegial." Yet if you ask any of them what position they'd play if Onex were a sports team, you get some serious "ums" and "ahs" from deal geniuses who are otherwise full of answers. One declined to respond. A second humbly offered himself as a baseball utility outfielder. Another said he'd be a point guard in basketball. A fourth volunteered for defence, where, presumably, he'd protect the bottom line. Not one positioned himself as a forward--someone who would lead the charge.

Why? Let's face it, they all know who gets to rag the puck whenever Team Onex takes to the ice.

The Spin Doctors' Prescription

Investor relations veteran Richard Wertheim, Wertheim + Co. Inc.: Onex needs to conduct a "qualitative perception study"--anonymous interviews with North American analysts, institutions and brokers--to determine perceptions of the firm's strengths and weaknesses, and whether investors recognize if there's bench strength behind Schwartz. "I talk to the analysts all the time. I know what they think," is something Wertheim often hears from companies. "No, you don't," he says. One key question in such a study: Do Onex's directors challenge the company's decisions, or are they a rubber stamp? Wertheim asks the question: "Does your board get stale when you've got people on it who've been around for 22 years?"

Branding expert Julie Rusciolelli, Maverick Public Relations: "The first thing they should do is change their website," she says, referring to Onex's bland and boxy internet presence. Then, soften Schwartz's image. Invite business journalists in for "fireside chats," and allow other partners to speak for the company. "Onex needs to create a personality. Should Onex be building a thousand homes for Habitat for Humanity and putting its name on every door? What's their cause? Give the Onex brand a face other than Gerry Schwartz's face."

Advertising executive Jeffrey Roche, Roche Lowe: "Onex shouldn't be Schwartz & Co.," says Roche. The first thing it should do is publicly "celebrate" the victories of the other people at the firm who've brought home big deals. As for corporate philanthropy, "With all due respect, when there is something Gerry Schwartz does for charity, it's Gerry Schwartz and Heather Reisman, not Onex. You don't see Galen Weston's name attached to anything. You see the Weston Foundation."

5 top guns

Seth Mersky, Managing director

Andrew Sheiner, Managing director

Gerald Schwartz, Chairman and CEO

Nigel Wright, Managing director

Anthony Munk, Managing director

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