Onex Corp. is a leading private equity firm with $38 billion of assets under management. It makes investments on behalf of shareholders, institutional investors, and high net worth clients worldwide. Its reportable segments are investing, and asset and wealth management. About 90% of segment earnings come from the investing segment.
The company practices value-oriented investing with a bottom-up, fundamental, and structural analysis in its credit platform. The firm operates through two private equity platforms – Onex Partners and ONCAP private equity funds, and Onex Credit and Gluskin Sheff. Onex Partners focuses on larger transactions while ONCAP funds focus on investing in small and medium-sized businesses in North America.
Gluskin Sheff is one of Canada’s pre-eminent wealth management firms. About 60% of Onex’s AUM consists of private equity, and the rest is comprised of cash & near-cash items (28%), credit (10%) and real estate & other investments (1%).
- Opportunity Score: 32
- Ticker: TSE:ONEX
- Sector: Financial Services
- Industry: Asset Management
- Market Cap: 7.39B
- P/E: 8.81
- Dividend Yield: 0.49%
- Payout Ratio (Earnings): 4.28%
- Canadian Dividend Aristocrat: YES
- Chowder Score: Members Only
- Revenue Growth: Members Only
- Dividend Growth: Members Only
- Dividend Growth Fit: 2/10
- Dividend Income Fit: 3/10
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Revenue Growth & Market Exposure
The business invests in a diversified portfolio of credits in various sectors and parts of the capital structure and also owns a diverse portfolio of operating companies across a wide range of industry sectors including consumer & retail, financial services, healthcare, industrials, etc. It manages fund investor capital ($31. billion) on behalf of investors from around the world.
These include public and private pension funds (27%), banks & insurance companies (22%), family offices (22%), and asset managers (21%). This diversification helps to generate a regular stream of annual management fees and provides the opportunity to share profits of the fund investors.
Over the past five years, fee-generating capital under management has increased by 15% CAGR per year. The firm successfully grew its total fee-generating AUM by 33% last year. Gluskin Sheff was the largest contributor to this growth, which witnessed an increase in client additions and good investment performance. The private credit platform also contributed 16% towards fee-generating AUM in 2019.
Through Onex Partners, the firm targets investment opportunities in the US, Canada, and Europe. It invested $2.7 billion through its private equity platforms in the last year with notable investments being the acquisition of WestJet and the launch of Convex, a specialty insurance provider.
Onex also invests primarily in non-investment grade debt through ONEX Credit. Its acquisition of Gluskin Sheff + Associates in June last year has resulted in the creation of a comprehensive platform fully capable of meeting market demand, expanding its distribution channels, and growing its fee-generating AUM.
The company focuses on acquiring and building high-quality businesses with strong free cash flow characteristics. Its revenues have grown at a rate of 8% CAGR in the last five years. With 35 years of experience, Onex has developed strategic investment philosophies, talent, financial resources which have helped the company maintain a leading position in the industry.
Onex is a Canadian Dividend Aristocrat paying consistent dividends every quarter for more than 30 years. Though its average annual yield is low at 0.67%, its dividend growth rate has been impressive. The firm last raised its dividend payout by 14.3% and sports an impressive dividend growth CAGR of 20% over the last five years. Onex pays quarterly dividends and also has a share buyback policy.
It has been successful in generating higher returns than the broader private equity market consistently over the long term. Its credit platform focuses on generating strong risk-adjusted returns. The firm has a good track record of solid performance with 21% annual returns on its private equity investments.
Onex’s policy to maintain a financially strong parent company makes funds available for capital commitments and growth. The firm identifies businesses with strong capabilities and solid free cash flow characteristics. It has completed 655 acquisitions with a total value of $81 billion to date. Its financial strength comes from both its own capital as well as the committed capital from its fund investors.
Onex Corp owns large global funds operating in multiple asset classes and provides the best in class investor services. Moreover, real assets provide an attractive solution to institutional and retail investors.
The firm has nearly $988 million in cash on its books and virtually no debt. The private equity industry is worth trillions of dollars in value and Onex as a leading asset manager, should continue to benefit from this growth trend.
Onex Corp competes with other investment funds as well as with institutional and strategic investors. Brookfield Asset Management, CI Financial, IGM Financial, Fiera Capital Corp., Fairfax Financial Holdings are few of its competitors. Onex’ large scale capital provides it a huge competitive advantage over its peers. In addition, each business in which an Onex Fund invests in also faces inherent risks.
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|TSE:BAM.A||BAM.A||Brookfield Asset Management||Financial Services||Asset Management||0.45||56.03||68.54||0.00||0.00||-0.22||0.0114||1.14||1.0000||4||0.52||0.0872||7||4||Tollbooth - Unregulated||NO||NO||YES||NO||Canada||1|
|TSE:IGM||IGM||IGM Financial||Financial Services||Asset Management||0.33||43.88||10.46||13.68||13.68||3.21||0.0513||5.13||0.7009||4||2.25||0.0513||1||5||Consumable - Discretionary||NO||NO||NO||NO||Canada||1|
|TSE:ONEX||ONEX||ONEX Corporation||Financial Services||Asset Management||0.32||82.29||7.39||8.81||8.81||9.34||0.0049||0.49||0.0428||4||0.40||0.1636||2||3||Consumable - Discretionary||NO||NO||YES||NO||Canada||1|
|TSE:CIX||CIX||CI Financial||Financial Services||Asset Management||0.40||19.76||4.14||8.95||8.95||2.21||0.0364||3.64||0.3258||4||0.72||0.0364||1||5||Consumable - Discretionary||NO||NO||NO||NO||Canada||1|
|TSE:BIPC||BIPC||Brookfield Infrastructure Partners||Financial Services||Asset Management||0.24||88.16||3.24||0.00||0.00||0.00||0.0284||2.84||1.0000||4||2.04||0.0284||1||2||Tollbooth - Unregulated||NO||NO||NO||NO||Canada||1|
|TSE:SII||SII||Sprott||Financial Services||Asset Management||0.20||55.42||1.42||43.13||43.13||1.28||0.0222||2.22||0.9600||4||1.00||0.0222||0||3||Consumable - Discretionary||NO||NO||NO||NO||Canada||1|
|TSE:UNC||UNC||United Corporation||Financial Services||Asset Management||0.31||107.49||1.30||6.12||6.12||17.56||0.0112||1.12||0.0683||4||1.20||0.0112||0||4||Consumable - Discretionary||NO||NO||NO||NO||Canada||1|
|TSE:FSZ||FSZ||Fiera Capital Corp||Financial Services||Asset Management||0.47||10.91||0.89||0.00||0.00||-0.03||0.0770||7.70||1.0000||4||0.84||0.1397||5||5||Consumable - Discretionary||NO||NO||YES||NO||Canada||1|
|TSE:AGF.B||AGF.B||AGF Management||Financial Services||Asset Management||0.42||7.60||0.54||3.44||3.44||2.21||0.0421||4.21||0.1448||4||0.32||0.0421||1||5||Consumable - Discretionary||NO||NO||NO||NO||Canada||1|
As one of the oldest private equity firms, Onex Corp. has earned investor confidence and has grown rapidly with a disciplined approach to investing and a focus on capital preservation. Onex has substantial financial resources to support its investment strategy and is growing through considerable investments each year.
The company’s private equity business is currently affected as a result of volatility associated with economic uncertainty and the potential impact of the coronavirus. Given the huge growth potential in the form of increased capital, fee-generating assets, strong financial backing, and long dividend-paying history, Onex should continue its dividend growth streak in the future.