Onex Corporation Chairman of the Board, President and Chief Executive Officer Gerald Schwartz speaks at the company's annual general meeting in Toronto on Thursday, May 10, 2012.Nathan Denette/The Canadian Press
Onex Corp.'s carve-out strategy has produced another solid return.
Over the years, carve-outs have become a go-to strategy for the buyout shop founded by Gerry Schwartz. The playbook goes like this: Look for a slightly forgotten division in a company that produces goods for that company, but which could be a lot busier and more efficient if it could also do more work for competitors. Buy division. Expand customer list. Drive up profitability. Sell for tidy profit.
Onex has put the strategy to work in businesses as disparate as airline catering, airplane parts, transmissions and now, warranties.
The buyout company purchased the warranty business of Aon Corp. in 2006, putting up $488-million of equity. Friday, the company agreed to sell The Warranty Group for $1.5-billion on an enterprise value basis. Onex said that its total proceeds from the investment stand at $1.5-billion, including prior returns of capital. That works out to an 18 per cent rate of return. It's not a knockout by Onex's standards, but it's a solid mark in the win column.
Here are some of the company's other carve-out wins:
Allison Transmission: Onex and Carlyle Group bought Allison out of General Motors Corp. in 2007. The price was $5.6-billion, with about $1-billion of equity. The first few years were rough with the recession in the wake of the financial crisis. Since then, the company has gone public. The companies have taken out about $1.5-billion since in share sales, and still have an ownership stake remaining. Here's a good rundown from the Wall Street Journal.
Spirit AeroSystems: In June 2005, Onex and the funds it runs put up $375-million to purchase the jetliner body plants owned by Boeing Co. Onex renegotiated union contracts, then acquired a supplier to Boeing rival Airbus. So far the company has realized $2.5-billion on its investment. Onex still owns a stake.
Sky Chefs: The original carve-out. Onex bought a majority of Sky Chefs, which was at that time the captive catering division of American Airlines. The cost was $14-million. Through takeovers and new contracts, Sky Chefs became a supplier to many more airlines. Onex's total investment rose to $99-million. Revenues soared. By the time Onex sold the last of its stake in 2001 to Lufthansa Service Holdings AG, Onex's total take had risen to $1.8-billion.