Onex Corporation · TSX:ONEX
Onex — Investor Day (May 2013)
88 slides from Onex's investor day presentation, May 30, 2013
Slide 1: Investor Day
INVESTOR DAY May 30, 2013
Slide 2: Safe Harbour
Safe Harbour This presentation contains forward-looking statements related to our future growth, trends in our operating companies’ businesses and industries and our financial and operational results and performance that are based on current expectations, forecasts and assumptions involving risks an
Slide 3: Introduction
Introduction Emma Thompson Vice President, Investor Relations
Slide 4: Agenda
Agenda Emma Thompson Introduction and Performance Review Vice President, Investor Relations Donald Lewtas Onex Overview CFO Bobby Le Blanc Who We Are Senior Managing Director Private Operating Company Review Onex Team Michael Lay ONCAP Managing Partner, ONCAP Michael Gelblat Onex Credit Partners CEO
Slide 5: Historical Total Returns
Historical Total Returns 20 Years 10 Years +17% +14% +9% +9% +9% +8% S&P TSX S&P 500 OCX S&P TSX S&P 500 OCX 5 Years 1 Year +28% +26% +8% +13% +6% -0% S&P TSX S&P 500 OCX S&P TSX S&P 500 OCX Annualized total returns through May 24, 2013. Source: Bloomberg. 2
Slide 6: Our Objective
Our Objective Long-Term Proprietary Capital Per Share Growth Exceeding 15% Per Year 3
Slide 7: Our Performance
Our Performance Q1-13 2012 2011 2010 2009 Proprietary Capital per Share +3% +12% +8% +17% +16% OCX Share Price +16% +26% +10% +28% +30% S&P TSX Composite +3% +4% -11% +14% +31% S&P 500 +10% +13% +0% +13% +23% 4
Slide 8: Private Equity Outperforms
Private Equity Outperforms 20 Years 15 Years +13% +12% +9% +8% +7% +4% S&P TSX S&P 500 Private Equity S&P TSX S&P 500 Private Equity 10 Years 5 Years +14% +9% +7% +7% +1% +2% S&P TSX S&P 500 Private Equity S&P TSX S&P 500 Private Equity Index returns are annualized total returns through December 31,
Slide 9: Onex Overview
Onex Overview Donald W. Lewtas CFO
Slide 10: Overview
Overview Investor and manager - Founded in 1984; public since 1987 - Managing third-party capital since 1999 One of the oldest and most successful private equity firms - 28% returns over 29 years (2.8x MoC)* - Attractive, diversified portfolio of industry-leading businesses Attractive business model
Slide 11: Our Business
Our Business Total AUM: $16B Investor Manager Proprietary Capital Third-Party Capital $5.1B $10.8B Acquire and Build Manage and Grow High-Quality Businesses Third-Party Capital 2
Slide 12: Our Investing Platforms
Our Investing Platforms Large Cap Private Equity Mid Cap Private Equity Credit Real Estate Onex Partners Direct ONCAP Onex Credit Onex Real Partners Estate Partners Debt Opportunity Camden Strategy Partnerships Senior Credit Sky View Strategy Parc Credit Strategy MidWest Fund Apartment Properties Se
Slide 13: How We Are Invested
How We Are Invested ($ in millions) Mar 31, 2013 Mar 31, 2012 Private Equity Onex Partners Private Companies1 $ 1,747 $ 1,333 Public Companies2 803 822 Unrealized Carried Interest on Onex Partners Investments3 162 119 ONCAP4 418 335 Direct Investments Private Companies5 151 204 Public Companies2 144
Slide 14: Schedule of Fees and Expenses
Schedule of Fees and Expenses ($ in millions) December 31 2012 2011 Revenue Items Base Management Fees1 $ 108 $ 110 Transaction Fees, Net 5 - Carried Interest and Performance Fees Received2 6 72 Interest and Other Treasury Income3 39 8 Total 158 190 Expense Items4 Base Compensation (incl. benefits)
Slide 15: Growth in Assets under Management
Growth in Assets under Management Grows in steps as new funds raised Overall AUM growth of 49% since December 2008 OCP’s AUM has grown by 92% since December 2011 ($ in billions) $15.8 $14.9 $14.1 $13.6 $12.0 $10.6 2008 2009 2010 2011 2012 31-Mar-13 OP ONCAP OCP OREP OTHER 6
Slide 16: Private Equity Management Fees
Private Equity Management Fees Committed Third-Party Capital Invested Third-Party Capital Fund Amount Fee Amount1 Fee Onex Partners I $1.2 billion 2.00% $332 million 1.00% Onex Partners II $2.0 billion 2.00% $578 million 1.00% Onex Partners III $3.5 billion 1.75% $2.1 billion 1.00% ONCAP II C$286 mi
Slide 17: Growth in Management Fees
Growth in Management Fees Since 2003, annual management fees have grown more than six-fold ($ in millions) $110 $111 $98 $55 $31 $18 2003 2005 2007 2009 2011 Current Run Rate OP ONCAP OCP Operating Companies 8
Slide 18: Illustrative Fee Growth Potential
Illustrative Fee Growth Potential ($ in millions) + $61 ($35) $0 ($3) $134 $111 Current OPIV OPIII OPII OPI Adjusted Run Rate Run Rate 9
Slide 19: Carried Interest Potential
Carried Interest Potential Returned $1.8 billion of capital to Onex Partners I and II LPs - $184 million of realized carried interest to Onex Remaining $3.0 billion of LP capital invested in the three Funds - $162 million of unrealized carried interest included in Onex’ proprietary capital $803 mill
Slide 20: Carried Interest Example
Carried Interest Example Example: $1 billion of Third-Party Invested Capital Onex’ Share of Gross IRR Potential Carried Interest1 ($ millions) 0% $0 5% $0 10% $45 15% $81 20% $119 25% $164 1 Based on a holding period of five years. Carried interest is 20% of gains on LP capital, of which 40% is allo
Slide 21: Why Own Onex?
Why Own Onex? Principal investing culture - Growth in proprietary capital per share - Significant upside potential on new investments Manager of third-party capital - Predictable stream of annual management fees that - substantially offsets ongoing operating expenses - Meaningful carried interest op
Slide 22: Appendix: Global LP Relationships
Appendix: Global LP Relationships By Geography1 By Type1 6% 18% 19% 52% 7% 58% 13% 23% 2% 2% Pensions Sovereign Wealth United States Europe Banks & Insurance FoF & Asset Managers Asia & Australia Canada Endowments High Net Worth 1 Based on third-party Limited Partner commitments to the Onex Partners
Slide 23: How We Are Invested Endnotes
How We Are Invested Endnotes 1 Based on the US$ fair value of the investments in Onex Partners’ financial statements net of the estimated Management Investment Plan (“MIP”) liability on these investments of $55 million (March 31, 2012 − $24 million). RSI, which was sold in February 2013, and CDI, wh
Slide 24: Schedule of Fees and Expenses Endnotes
Schedule of Fees and Expenses Endnotes 1 The management fees include those from the third-party investors in the Onex Partners and ONCAP private equity funds, those earned by Onex Credit Partners manager and Onex' retained portion of the management fees from operating companies. 2 Carried interest a
Slide 25: Who We Are
Who We Are Bobby Le Blanc Senior Managing Director
Slide 26: Our Objective
Our Objective Long-Term Proprietary Capital Per Share Growth Exceeding 15% Per Year All amounts in US$. 1
Slide 27: Annual Growth Model
Annual Growth Model Growth in Project Onex Return Proprietary Capital IRR IRR1 on Cash2 Per Share 15% 16% 1% 12% 20% 21% 1% 15% 25% 26% 1% 19% 28% 29% 1% 21% 75% invested 25% in cash 1 Assumes private equity investments held for five years. 2 Assumes blended return on cash and Onex Credit Partners.
Slide 28: Our Investing Strategy
Our Investing Strategy Global businesses with world-class core capabilities - Operational improvement potential - Labor, supply chain and manufacturing Controllable outcomes Focus on unlevered free cash flow 3
Slide 29: Our Theses
Our Theses Cost reduction and operation restructuring Accretive consolidations Corporate carve-outs 4
Slide 30: Our Discipline
Our Discipline Prudent purchase price multiples and leverage Purchase Price Multiple Leverage Multiple at Entry 9.8x 9.5x 9.1x 8.9x 6.2x 8.6x 8.5x 8.7x 8.2x 7.9x 7.4x 5.3x 5.4x 5.2x 5.1x 5.1x 6.9x 4.8x 4.9x 4.7x 4.0x 3.7x 2004 2005 2006 2007 2008 2009 2010 2011 2012 Mkt. Onex 2004 2005 2006 2007 200
Slide 31: Team Development
Team Development Attracting and selecting new talent - MDs interview all candidates - Focus on traits of successful senior investment professionals Promoting from within - Largely ‘home-grown’ team - Clear path to promotion Investment process reinforces values and approach - Full team involvement -
Slide 32: Team Development
Team Development Internship program - One-year placement at operating company - Onex intern working with the CEO Shared financial goals - Broad carry distribution - Annual carry allocation - Pro rata in all investments 7
Slide 33: Alignment of Interests
Alignment of Interests Onex is the largest LP in every Fund Significant investment by team - Team has $1.8B invested in Onex shares and in Onex’ operating companies - 25% of gross carry realizations are invested in Onex shares; must be held to retirement - ~12% commitment to Onex Partners III (inclu
Slide 34: USI
USI Adam Cobourn Senior Associate
Slide 35: USI Investment Overview
USI Investment Overview Leading U.S. commercial insurance broker acquired in December 2012 Equity investment of $702 million, of which Onex’ share was $170 million - Significant management investment of approximately $80 million Culmination of seven years of evaluating insurance brokerage acquisitio
Slide 36: At a Glance
At a Glance Arranges property & casualty (P&C) and employee benefits insurance products for middle-market businesses Typically earns a fixed percentage of client’s policy premium – highly recurring revenue profile and no underwriting risk Focused on the underserved middle market Integrated operating
Slide 37: Profitable Growth
Profitable Growth ($ in millions) 32% $794 18% $299 $255 $53 2001A 2002A 2003A 2004A 2005A 2006A 2007A 2008A 2009A 2010A 2011A 2012A PF 2012A Revenue Adjusted EBITDA EBITDA Margin Consistent growth and margin expansion 3
Slide 38: Investment Thesis
Investment Thesis Attractive cash flow characteristics Accretive acquisition opportunities Sustainable competitive advantages Organic growth tailwinds 4
Slide 39: Superior Cash Flow Profile
Superior Cash Flow Profile + Stable, recurring, well-diversified revenue with ~90% retention + Attractive EBITDA margins (>30%) + Low capex and working capital requirements (~1% of sales) = Strong, steady free cash flow Fund accretive acquisitions or deleverage 5
Slide 40: Track Record of Accretive Acquisitions
Track Record of Accretive Acquisitions More than 65 acquisitions completed between 2007-2012 - Average post-synergy multiple of less than 6x EBITDA Earnout structure (~30-35% of purchase price) reduces risk Integrated platform allows for rapid integration and significant operating synergies 6
Slide 41: Organic Growth Tailwinds
Organic Growth Tailwinds Improving Economy: Increasing economic activity leads to greater demand for insurance Increasing Insurance Rates: Improving rate environment following several years of weakness Growing Market Share: Significant recent investment in organic growth initiatives resulting in mor
Slide 42: Value Creation Opportunity
Value Creation Opportunity Opportunity to earn an attractive risk-adjusted return from a combination of: - Annual free cash flow generation - Accretive acquisitions - Modest organic growth (low-mid single digits) Additional upside possibilities include: - Continued margin expansion - Stronger-than-e
Slide 43: KraussMaffei Group
KraussMaffei Group David Mansell Managing Director
Slide 44: KraussMaffei Investment Overview
KraussMaffei Investment Overview Acquired leading manufacturer of plastic and rubber processing equipment in December 2012 Leveraged investing experience and diligence completed in injection molding and extrusion industry as well as relationships with management and prior owner Significant opportuni
Slide 45: At a Glance
At a Glance Top three global market position in three key plastics processing technologies Injection Molding (#3) Extrusion (#1) Reaction Processing (#1) 2
Slide 46: At a Glance
At a Glance Diversified across geographies and end-markets Loyal, blue-chip customer base Automotive Packaging Infrastructure Chemical (33% of sales) (21% of sales) (13% of sales) (10% of sales) Rubber Consumer Medical / Pharma Other (7% of sales) (6% of sales) (4% of sales) (6% of sales) 3
Slide 47: At a Glance
At a Glance (€ in millions) Key Data – LTM 3/31/2013 Revenue €1,040 Adj. EBITDA €92 % margin 8.9% Capex €23 % of sales 2.2% Net debt €266 LTM leverage 2.9x Employees ~4,100 4
Slide 48: Investment Thesis
Investment Thesis Market leadership position across plastic and rubber processing technologies Significant operational improvement opportunities Favorable secular growth trends and diversity in end-markets Range of meaningful growth opportunities 5
Slide 49: Active Ownership
Active Ownership Launched broad operational improvement plan - Direct and indirect material procurement savings - Expanding LCC manufacturing footprint in existing facilities in Slovakia and China - Streamlining engineering operations - Implementing lean manufacturing practices Operational improveme
Slide 50: Active Ownership
Active Ownership Augmented management team - President of Extrusion Division - Vice President HR - Vice President Global Operations Member of the Onex investment team seconded to Munich as full-time member of the operational improvement team Implemented management equity incentive program - Long-ter
Slide 51: SGS International
SGS International Akira Okubo Principal
Slide 52: SGS Investment Overview
SGS Investment Overview Acquired market leading provider of packaging graphic services in October 2012 Leveraged investing experience in packaging as well as relationships within consumer industry Onex Partners III investment of $260 million, of which Onex’ share was $66 million Substantial investme
Slide 53: What SGS Does
What SGS Does 1. Brand Strategy - Creative agency designs initial concept and sends “style guide” to SGS 2. Brand Execution - SGS creates multiple product variations 3. Image Production - SGS retouches and separates colors 4. Image Carrier Services - SGS transfers artwork onto a physical image carri
Slide 54: Brand Lifecycle
Brand Lifecycle SGS’ services are provided at multiple points in a brand’s lifecycle Majority of revenue is from tweaks, seasonal and regional changes Major Old Design Redesign Minor Regional Tweak Seasonal 3
Slide 55: At a Glance
At a Glance Services Mix1 Largest vertically-integrated graphics services provider Image Carrier Critical link between brand owners Services 30% and packaging printers Pre-Media Services 70% Service-based business with highly variable cost structure Geographic Mix1 Over 2,700 employees across 40 bra
Slide 56: At a Glance
At a Glance Select Customers Long-term customer relationships CPGs Top 10 customers represent 35% of 2012 revenue 98% customer retention rate 2012 Revenue by Customer Type Other Label Packaging 1% Retail / Private Converters 31% CPGs 54% Converters Retail / Private Label Tobacco 11% 3% 5
Slide 57: Key Financials
Key Financials ($ in millions) Key Data – LTM 3/31/2013 Revenue1 $439 Adj. EBITDA1 $104 % margin 23.7% Capex $16 % of revenue 3.6% Net debt $591 LTM leverage 5.7x Employees ~2,700 Geography 17 countries Facilities 40 production / ~100 on-site 1 Pro forma for acquisitions and the run-rate impact of i
Slide 58: Investment Thesis
Investment Thesis Market leader with strong value proposition Highly profitable with attractive free cash flow profile Long-term customer relationships with leading CPG firms globally Attractive industry growth dynamics Opportunities to further expand geographically and into complementary services P
Slide 59: Active Ownership
Active Ownership M&A Operational Expanding market share, Implementing facility service offerings and/or consolidation initiative geographic presence Expanding off-shoring Two acquisitions under capacity in Philippines Onex ownership to date Expanding service offering Negotiating two additional with
Slide 60: BBAM
BBAM Tawfiq Popatia Principal
Slide 61: BBAM Investment Overview
BBAM Investment Overview Total Onex Partners III investment of $217 million, of which Onex’ share was $55 million - Acquisition of a 50% interest in BBAM for $165 million - Purchase of $20 million of newly issued shares in FLY Leasing - Initial investment of $32 million in Meridian Aviation Partners
Slide 62: At a Glance
At a Glance BBAM is one of the world’s largest managers of commercial jet aircraft - Manages approximately 400 aircraft representing $13 billion of AUM - Full-service manager with nine offices in seven countries The only competitor within the industry that is exclusively a manager of aircraft withou
Slide 63: At a Glance
At a Glance Relationships with approximately 200 airline customers in more than 50 countries North America Europe Asia-Pacific South America Africa / Middle-East 3
Slide 64: At a Glance
At a Glance ($ in millions) Key Data – LTM 3/31/2013 Revenue $158 Adj. EBITDA $74 % margin 47% Capex $0 % of sales 0% Net Debt / (Cash) ($16) LTM leverage (0.2x) Employees ~110 Geography 7 countries 4
Slide 65: Investment Thesis
Investment Thesis Among the most sophisticated and disciplined originators and managers of aircraft investments in the industry Generates high free cash flow on a low asset base Good downside protection given: - Absence of financial leverage; - Significant management ownership; - Onex’ partially-pre
Slide 66: Industry Investment Thesis
Industry Investment Thesis Financial performance ultimately correlated to commercial aviation passenger traffic, which has grown in 47 of the last 50 years Aircraft leasing is a structurally attractive business given contracting and associated stability through downturns Favorable long-term supply a
Slide 67: Active Ownership
Active Ownership Introduce BBAM’s proprietary origination and investment capability to institutional investors - Established successful aircraft investor - Aircraft possess characteristics well-suited to investment: (i) liquidity; (ii) low volatility; (iii) pricing inefficiency - Historical aircraft
Slide 68: Significant Private Operating Company Review
Significant Private Operating Company Review 0
Slide 69: Significant Private Operating Company Review
Significant Private Operating Company Review LTM Revenue1 LTM EBITDA2 Net Debt Net Debt/EBITDA (US $ unless Cumulative otherwise At At At At indicated) Distributions Acquisition March 2013 Acquisition March 2013 Acquisition March 2013 Acquisition March 2013 The Warranty Group3 1.2B 1.3B 65MM 113MM 2
Slide 70: Significant Private Operating Company Endnotes
Significant Private Operating Company Endnotes 1 Based on local GAAP of the individual operating company. 2 EBITDA is a non-GAAP measure and is based on the local GAAP of the individual operating companies. These adjustments may include non-cash costs of stock-based compensation and retention plans,
Slide 71: ONCAP
ONCAP Michael Lay Managing Partner
Slide 72: ONCAP Overview
ONCAP Overview Established in 1999 as Onex’ mid-market private equity platform - Dedicated 12-person investment team ONCAP I (1999): C$400 million - Fully realized with 4.1x gross MoC (all > 2x); 3.1x net MoC; 43% gross IRR; 33% net IRR ONCAP II (2006): C$574 million - Fully invested in eight busine
Slide 73: Consistent Investment Criteria
Consistent Investment Criteria Targeting equity investments of $50-$100 million in North American businesses Strong, sustainable free cash flow characteristics - Barriers to entry to sustain competitive advantage Market leadership in fragmented industries - Build through add-on acquisitions Develop
Slide 74: Since Last Year…
Since Last Year… Acquired Bradshaw International (December 2012) - Leading U.S. designer, marketer and category manager of everyday houseware products - Fourth acquisition in ONCAP III Signed agreement to sell BSN Sports (May 2013) - Leading marketer, manufacturer and distributor of sporting goods a
Slide 75: Bradshaw International – At a Glance
Bradshaw International – At a Glance Acquired Bradshaw for $241 million - $86.7 million equity investment ($79.9 million ONCAP investment) - Financed with 4.6x adjusted net debt1 4,000 SKUs across diverse set of product, customer and brand categories Product Mix Customer Mix Brand Mix Other Retailer
Slide 76: Bradshaw International – Investment Thesis
Bradshaw International – Investment Thesis Attractive industry characteristics - Large, fragmented industry - Stable demand #1 or #2 player in each of its segments - Manages complex, SKU intensive, slow turning categories and private label programs – significant value to retailers - Strong customer,
Slide 77: ONCAP I and II: Realized Returns
ONCAP I and II: Realized Returns Multiple Source Exit IRR* of Capital* Onex Strategic sale 4.1x 61% relationship Limited auction Strategic sale 5.8x 57% process Proactive industry Strategic sale 2.0x 22% research Proactive industry Strategic sale 4.2x 35% research Onex IPO 2.1x 30% relationship 6 Li
Slide 78: Capital Invested Since Inception
Capital Invested Since Inception (in millions of C$) 4.1x Gross MoC 2.2x Gross MoC 1.1x Gross MoC 2.3x Gross MoC 3.1x Net MoC 1.6x Net MoC 1.0x Net MoC $2,152 $1,017 $850 $929 $468 $253 $285 $208 ONCAP I ONCAP II ONCAP III Total (1999) (2005) (2011) Since Inception Capital Invested Realized Proceeds
Slide 79: 2013 Priorities
2013 Priorities Continued focus on nine existing operating companies Ongoing industry research efforts Selectively consider attractive investment opportunities 8
Slide 80: Onex Credit Partners
Onex Credit Partners Michael J. Gelblat CEO
Slide 81: Credit Investing Platform
Credit Investing Platform Onex’ credit platform 21-person team with an average of 19 years of industry experience Platform for growth - Leveragable infrastructure - Expect continued growth in recurring fee income All amounts in US$. 1
Slide 82: AUM Growth
AUM Growth Two CLOs $2.8B ($1.0B) First CLO ($320MM) $1.8B $1.5B $1.3B $782MM $350MM $253MM Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Mar-12 Mar-13 Third-Party Capital Onex Capital 2
Slide 83: CLO Market
CLO Market U.S. CLO market has performed well since the credit crisis - Strong comeback in issuance in 2012 Onex Credit Partners is well-positioned - Investors favour stable and diversified managers - Warehouse facilities for future offerings - Focused on quality, not market share $89 $93 $59 $52 $3
Slide 84: Leveraging the Platform
Leveraging the Platform Debt Opportunity High Yield Senior Bonds Floating Senior North American Credit CLOs Structured Products European CLOs Develop products with complementary investment capabilities and distribution channels Dashed line indicates new strategy. 4
Slide 85: Growth Opportunity
Growth Opportunity Experienced team and leveragable infrastructure Plans for additional CLOs and other products Growth in recurring management fee revenues Opportunity for incentive fees 5
Slide 86: Valuing Onex: Moving the Goal Posts
Valuing Onex: Moving the Goal Posts Seth Mersky Senior Managing Director
Slide 87: Panel Discussion
Panel Discussion Gerald W. Schwartz Bobby Le Blanc Seth Mersky Moderator: Emma Thompson
Slide 88: ONEX.COM
ONEX.COM