Long-term investor Altas Partners closes in on Q4 deal trifecta

Altas Partners, a pioneer of long-life investing, will soon conclude its busiest quarter to date, wrapping up three transactions — two of them years in the making.

Last month, the Toronto private equity firm closed its acquisition of commercial-roofing contractor Tecta America from ONCAP.

Also in November, Altas completed a minority investment in insurance brokerage Hub International, joining existing owner Hellman & Friedman.

And before the year is out it is expected to finalize a $400-million carveout of physical-therapy school University of St. Augustine for Health Sciences from Laureate Education.

This many closings in a three-month span is rare for Altas, which maintains a slow and deliberative deal pace as part of its long-term strategy.

Founded in 2012 by Managing Partner Andrew Sheiner, a former senior Onex Corp executive, the firm makes control-stake investments in hard-to-replicate businesses and holds them indefinitely.

The strategy departs from the traditional PE horizon of three to five years.

Companies of interest to Altas possess natural advantages that will make them “just as relevant and profitable a decade from now,” Sheiner told Buyouts.

Attributes include a demonstrated track record, sector leadership and an attractive cash-flow profile.

Often these are private businesses navigating an owner-operator transition. Others have a history of sponsor ownership and are now “keen to get off the PE treadmill,” Sheiner said.

A select few emerge from an Altas sourcing process that averages 15 months, from initial engagement to completion. In some cases, as with Hub and USAHS, origination can run for more than 24 months.

On balance, Altas picks one or two companies for acquisition per year, investing up to $800 million in each.

Flexibility the watchword

Along with selectivity, Sheiner said his firm’s strategy puts a premium on a “flexible” horizon. This means investing without reference to a specific timeline, focusing instead on holding assets long enough to generate maximum value.

“Each investment marks the beginning of a journey,” he said. “We partner with a like-minded management team and set out to execute on a shared vision for the business. We don’t know where the journey will take us, which is why flexibility is essential.”

Sheiner said this “optionality of ownership” is key to Altas’s differentiation in a growing club of long-term investors.

In recent years, a number of PE firms, including buyout giants Blackstone Group, Carlyle Group, CVC Capital Partners and KKR, have raised billions of dollars for long-life vehicles. Several offerings have featured hold periods as long as 15 to 20 years.

Upon completion of the USAHS transaction, Altas will have made seven investments in seven years. Five of them sit in the portfolio of Altas Partners Holdings LP, which raised $1 billion in 2016.

In sync with LP trends

Altas’s strategy has met with a warm reception among global institutional investors, many of which are looking to deploy larger sums to long-term opportunities. This is especially true at a time of market frothiness and uncertainty.

Such investors, including pension funds, insurers, endowments and family offices, have so far committed roughly $5 billion to the firm’s stewardship, Sheiner said.

Several have committed resources as major partners in Altas’s transactions.

For example, Altas and Caisse de dépôt et placement du Québec co-led a group that in 2015 invested in optometry-practices manager Capital Vision Services.

And CDPQ and OPTrust joined a 2014 consortium led by Altas and Baring Private Equity Asia to acquire medical school St. Georges University, reportedly for $750 million.

Sheiner oversees a team of 14 investment pros. Its senior members include Managing Partner Scott Werry and Partners Christopher McElhone, Paul Nicoletti, David Brent and Damon Conway.

Brent signed on in July from Apollo Global Management.

Do long-life funds outperform?

Bain & Co recently examined the question of whether long-term PE funds outperform traditional funds.

Bain modeled costs and returns for a theoretical long-life fund selling an investment after 24 years versus a short-duration fund selling four successive companies over the same period.

It found the long-life fund outperformed the short-duration fund by almost 2x on an after-tax basis.

This was achieved, Bain said, by eliminating transaction fees, deferring capital gains taxation and keeping capital fully invested.