Onex Corp. ONEX-T raised US$355-million on Thursday by selling a portion of its stake in insurance company Ryan Specialty Holdings Inc. RYAN-N, cash that analysts predict the alternative asset manager will use to buy back its own shares.
Two weeks after Bobby Le Blanc formally took the reins as chief executive officer at Onex and promised to do more “at an accelerated pace” to satisfy investor concerns with weak financial performance, the Toronto-based company sold 8.2 million shares in Ryan Specialty, which is listed on the New York Stock Exchange. Onex first backed the Chicago-based company five years ago, and has more than tripled its investment.
Onex founder Gerry Schwartz stepped down as CEO this month, while remaining chair of the company he launched in 1984.
The Ryan Specialty share sale boosts Onex’s cash reserves to $2-billion, twice the amount analysts say the company typically carries. In a report, analyst Geoffrey Kwan at RBC Capital Markets said the Ryan Specialty stock sale means “more cash resources to be used for share buybacks, as Onex’s shares trade at a 53-per-cent discount to net asset value.”
Over the past year, Onex’s stock price declined by 15 per cent and the discount widened between the company’s share price and the underlying value of its holdings.
Earlier this month, Mr. Le Blanc launched a strategic review of Onex’s operations and said: “We will re-emerge as a stronger and more streamlined organization.”
Onex and other private equity fund managers buy businesses with borrowed money. The combination of rising interest rates and a potential economic slowdown have investors questioning how this approach will perform in the future, and Onex recently halted fundraising on its latest flagship private equity fund. In a report, analyst Phil Hardie at Bank of Nova Scotia said: “Management is taking advantage of these challenging times by setting Onex on the right course for when conditions improve.”
Taking profits on its investment in Ryan Specialty is an example of Onex’s approach to private equity, which includes backing entrepreneurs in private companies, taking the business public, then eventually cashing out.
In 2018, Onex invested US$306-million in Ryan Specialty, capital that founder Patrick Ryan used to expand the business, in part through acquisitions. Before launching the business in 2010, Mr. Ryan was founder and CEO of Aon Corp., which he built into one of the world’s largest insurance brokerages.
Ryan Specialty went public in 2021 and prior to its most recent stock sale, Onex had raised US$534-million from selling down its stake. Onex still owns 4.1 million shares in Ryan Specialty, worth approximately US$170-million.
Onex will also sell its remaining stake in Celestica Inc. in the near future, according to analysts, after converting its multivoting shares in the tech manufacturer into single-vote stock. Onex acquired Celestica in 1996 from International Business Machines Corp. by putting up US$149-million of its own capital.
In 1998, Celestica went public in 1998, and Onex sold a portion of its stake as the stock soared during the tech boom. To date, Onex has made US$801-million on the investment, and holds a stake that is worth approximately US$225-million.