Onex Partners aims for USD 8bn target with sixth flagship fund

Min Ho
27 September 2022

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Canadian GP Onex Partners is looking to raise around USD 8bn for its sixth fund, with a first close expected before the end of 2023, London-based senior managing director Nigel Wright told Unquote.

Onex Partners VI, which was registered in Luxembourg in February, is expected to continue its fundraising efforts next year, he said. Around USD 1.5bn is expected to come from Onex's balance sheet, he added.

The sixth fund is not expected to be materially larger than its incumbent fifth buyout fund, he said, noting that Onex's fund sizes between generations generally grow commensurately with its team size.

The Toronto-headquartered investor held a final close for Onex Partners V in 2017 on USD 7.15bn, surpassing its USD 6.5bn target. Around 80% of the capital for the fifth fund has been deployed mostly in North America, with the remaining in Europe; namely, online education platform TES Global, healthcare services group Independent Clinical Services, and insurance specialist Convex. Auction processes where Onex was involved in over the year includes Italian packaging group Fedrigoni, according to sister publication Mergermarket.

Like its previous funds, Onex VI will focus on transactions with an average EV of USD 200m-700m. It can also make co-investments, including in partnership with founder executives, Wright said, noting that around 40% of its deals have been done in this way.

Around 25-30% of Onex's investments have been focused on Europe in its previous funds, with the remainder split evenly between Canada and the US, he said, adding that Onex intends to maintain this ratio for Fund VI.

Sector-wise, Onex will continue to focus on sectors including industrials, incorporating subsectors ranging from aerospace and defence to packaging, as well as the automotive aftermarket. In business services, Onex has historically invested in areas such as enterprise software, particularly in areas related to the regulatory environment such as education and government technology. In healthcare, the GP has focused on areas including medical devices and clinical services, Wright said.

All-weather strategy
Operational improvements will be key for its portfolio companies, he said, be it in salesforce effectiveness, go-to-market approaches or pricing. Cost-out strategies, on which Onex "cut its teeth" during the 1980 and 1990s, is also a forte, he added. Finally, the fund also focuses on roll-up strategies to help its portfolio companies to take on market share, he said.

Underpinning all its investments is Onex's focus on cashflow.

"Free cashflow yield to the next purchaser is core to us, because we haven't really felt that market trading multiples are reliable [when measured] in 2021 and what a 2027 sale will look like, for example," he said. "Whereas we think that with free cashflow yields, you have to assess them relative to growth profile, leverage and everything else. We think that's a more durable benchmark of what businesses are worth over time."

Describing Onex's strategy as "all-weather", it expects the fund to continue to hold in good stead as it enters "turbulent times", Wright said.

"In the last two or three years, investors in tech stories and pure growth have delivered better returns, but I don't know if anyone expects that to be the case for next years," he said. "Our fundamental view is we really shouldn't think of 2022-2023 as an anomaly - in fact, you probably should think of the 10 years since the global financial crisis as an anomaly because we were effectively given free money."