Onex Corp. chief executive officer Bobby Le Blanc expects the pace of deal-making to pick up this year for the private equity firm, but progress on raising new money for its key funds is still slow.
After an 18-month drought for mergers and acquisitions in private equity, as rapid increases in interest rates stalled the market, “activity seems to be picking up now,” Mr. Le Blanc told analysts on a Friday conference call discussing the company’s fourth-quarter earnings.
Interest rates have steadied, and if market conditions continue to improve, “we expect things to get better as the year goes on,” he said. “You should be able to see not only more return of capital but deployment of capital.”
Even though deal-making has been at a near standstill, Onex has been busy with a turnaround plan under Mr. Le Blanc, who was appointed CEO last year when founder Gerry Schwartz relinquished control. Mr. Le Blanc has focused on selling assets to return cash to investors, cut the company’s costs and reset its financial targets at more modest and achievable levels. Onex is also aggressively buying back its stock, repurchasing 3.5 million shares last year and pledging to continue with buybacks while its shares trade at what the company believes is a discount.
Onex’s share price has responded well, rising 60 per cent since Mr. Le Blanc took over in May. On Thursday, the company’s shares fell 2.9 per cent to $100.42 by early afternoon on the Toronto Stock Exchange.
Onex’s progress at raising new money has been slower than usual, as company leaders have acknowledged that some investors are waiting to see returns from existing funds before making new commitments. In response, Onex sold shares in insurance service provider Ryan Specialty Holdings Inc. for US$355-million last year, then agreed to sell its stake in venue and event management company ASM Global, for which it expects to reap proceeds of US$270-million.
Fundraising for its next flagship private equity fund is still on pause, though Mr. Le Blanc said the company is making progress on a smaller, shorter-term bridge fund to make sure it has capital to make new investments as opportunities come up.
Fundraising for its fifth ONCAP fund, which targets smaller, mid-market investments, “is making progress, slower than we’re all used to with them given their outstanding track record” Mr. Le Blanc said. Similarly, he said that gathering funds for its Falcon alternative private credit platform has been slower than usual. But fundraising for its collateralized loan obligation (CLO) business, which allows clients to invest in pools of debt, “has gone really, really well,” he said.
The company is still making new private-equity investments, and with its most recent deal to buy a majority stake in U.K.-based technical staffing company Morson Group, Onex has completed the initial investing period for its fifth flagship private equity fund.
In the quarter that ended Dec. 31, Onex’s private equity investments gained 5 per cent, or US$250-million, while its investments in credit were up US$67-million, or 8 per cent.
But profit fell as returns from asset management declined, largely because some clients withdrew funds from Onex’s private wealth division, which the company is in the process of winding down. Assets under management that generate fees fell to US$33.7-billion, from US$34.2-billion three months earlier. Onex stemmed the rate of decline by attracting US$3.7-billion of new fee-generating assets, mostly through seven new CLO it products launched last year.
Onex reported fourth-quarter profit of US$373-million, or US$4.81 per share, compared with US$435-million or US$5.32 in the same quarter in 2022.
For the full year in 2023, profit was US$529-million, up from US$235-million a year earlier, boosted by asset sales.
The Toronto-based private equity firm’s investing capital increased to US$8.4-billion, or US$107.82 per share – up 4 per cent in the quarter and 11 per cent over the past year.
Distributable earnings, which are a metric used to show the share of company profits that could be paid out to shareholders, were US$139-million in the quarter, up from US$67-million a year earlier.
Onex kept its first-quarter dividend unchanged from the previous quarter at 10 cents per share.
James Bradshaw