Onex Corp.’s ONEX-T new chief executive officer says “the shot clock is on” to prove to vocal shareholders that the private equity investor can narrow the large gap between its stock price and the underlying value of its assets.
Four months into his tenure as CEO, Bobby Le Blanc has moved quickly to make changes and reassure investors, selling stakes in two businesses to free up funds, buying back shares with some of the proceeds, and cutting costs.
But the countdown Mr. Le Blanc referred to at the Scotiabank Financials Summit on Thursday is a nod to the very specific and short runway that Onex has to show results. At the shareholder meeting in May where Mr. Le Blanc was named CEO, his predecessor – founder and private equity pioneer Gerry Schwartz – had agreed to a three-year sunset date on the multiple voting shares that assure his control of Onex, with shareholders’ support.
The task is clear: To show that Onex’s share price, which closed at $82.85 on Thursday and values the company’s private equity investments at 40 to 45 cents on the dollar, can trade at a price much closer to the total value of its assets, which Mr. Le Blanc pegged at about $132 a share.
“We have less than three years now to prove that,” Mr. Le Blanc said at the conference in Toronto. “We know that people are watching us and there’s a timeline in terms of what we need to do to get the share price to the right place, which I’m confident we can do,”
When asked whether activist investors have made contact, Mr. Le Blanc said there has been turnover in Onex’s shareholder base in recent months: “I wouldn’t call them activists, but they are active,” he said, adding they have given suggestions on how the company can improve its prospects.
From the outset, the challenges Onex faces under Mr. Le Blanc’s leadership were clear: The company said in May that it had paused fundraising for its largest private equity fund and delayed the timeline for hitting a key financial target, as it wound down its private wealth business and took a restructuring charge.
On Thursday, he also conceded that Onex’s 2019 acquisition of boutique wealth manager Gluskin Sheff and Associates Inc. for $445-million was a failed gambit. Gluskin had a captive audience of high-net-worth clients, but also suffered from high costs and outdated technology systems, and “we weren’t able to grow the revenue to keep up with that cost structure,” Mr. Le Blanc said.
Since March, Onex has been unwinding the business, transferring parts of it to RBC Wealth Management Canada under an agreement struck after some of Gluskin Sheff’s top advisers had planned to defect to RBC. Onex will have a chance to sell its products to a much larger clientele through RBC but will have to compete with rivals.
“I know it wasn’t a great acquisition,” Mr. Le Blanc said of Gluskin Sheff on Thursday. “But I think we could turn it into something where it turns out to be better in the long term.”
Onex is also attempting its revival at a tough moment for large-cap private equity investors: The market is “in a bit of a cyclical downturn right now,” Mr. Le Blanc said. Many of the sector’s investors borrowed heavily at low rates in recent years, but the cost of borrowing has soared, and providers of leveraged loans such as banks have pulled back.
“I think there’ll be opportunity, and some pain, honestly for the industry.”
At the same time, many institutional investors that are key sources of funding for private equity funds are overallocated to the asset class. That has made fundraising harder, and created a “huge desire” from institutional investors to have capital returned to them from more mature funds.
To fully unlock some of the value in Onex’s private equity funds, “we really need the buyers’ and sellers’ expectations to begin to converge with the new reality of the cost of capital,” Mr. Le Blanc said. “And you’re starting to see that.”