Onex tops Canadian buyout funds

Onex Corp. has completed the fund-raising for its second large-market buyout fund, taking in $3.45 billion in capital commitments. The new tally bests its own record for the largest Canadian buyout fund, which was set in 2004 when the Toronto-based firm took in $1.7 billion for its debut third-party vehicle. Onex completed the latest fundraise in five months time.

Fund further separates the firm from its Canadian buyout peers. Birch Hill Equity Partners, the Toronto-Dominion spinout, manages the second largest vehicle, at about $760 million in size, while firms such as TorQuest Partners, Richardson Capital and EdgeStone Capital Partners (recently acquired by GMP Capital Trust), operate much smaller funds.

Andrew Sheiner, a managing director at Onex, says that nearly all of its LPs re-upped for the recent fund, and the firm managed to add about 10 new relationships based largely in Asia and Europe. Onex has also increased its stake in the latest fund, controlling a 41% interest in the vehicle, compared with the 24% stake held in its predecessor. Onex will look to invest between about $180 million and $450 million per deal and will likely invest in between eight and 10 transactions.

Onex has never had an industry focus, although it tries to buy companies it believes are undervalued. It made several health care investments out of Onex Partners I simply because that was where it was finding value, says Sheiner, who adds, “We migrate from sector to sector.”

The reason Onex raises larger vehicles than its Canadian peers is because the firm’s focus extends beyond its backyard in Toronto, whereas the other firms are raising funds sized appropriately for Canada’s smaller marketplace. In fact, about 75% of Onex’s capital ends up in U.S.-based companies.

The firm has been operating out of New York since 1986, and its offices there hold roughly one-third Onex’s professionals. “We’ve been investing in the U.S. longer than most U.S. firms have been around,” said Sheiner.

Onex has raised five funds overall, including the two ONCAP funds, which are the firm’s small- and mid-cap vehicles, and Onex Real Estate Partners, its vehicle used for commercial and residential real estate. The firm’s large market debut fund, meanwhile, has so far generated a return north of 50%, according to Sheiner.

Onex has already started investing from fund II, acquiring product warranty underwriter Aon Warranty Group in a $715 million deal.

Other portfolio companies from fund I include electronics manufacturing services provider Celestica Inc., therapeutic radiology provider Center for Diagnostic Imaging and the largest Canadian movie theater operator, Cineplex Entertainment. ONCAP’s investments include military and aviation electronics maker CMC Electronics and organic waste recycler Environmental Management Solutions. Onex is also currently looking to float Spirit AeroSystems on the New York Stock Exchange. —Mark Cecil