Onex Corporation · TSX:ONEX
Onex — Investor Day (June 2010)
79 slides from Onex's investor day presentation, Jun 10, 2010
Slide 1: Investor Day June 10, 2010
INVESTOR DAY June 10, 2010
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: Agenda
AGENDA June 10, 2010 Breakfast and Registration Emma Thompson Introduction Vice President, Investor Relations Don W. Lewtas Onex Overview CFO Andrew J. Sheiner New Paradigm at Work Managing Director Nigel S. Wright Proven Investment Strategy Managing Director Private Operating Company Review Onex Te
Slide 4: Onex Overview
Onex Overview Donald W. Lewtas CFO
Slide 5: Onex Overview
Onex Overview Top-decile performer over 26 years $12B of AUM Stable annual management fee stream Meaningful carried interest opportunity Financially secure parent with substantial liquidity All amounts in all presentations in US$ unless otherwise specified. 1
Slide 6: Firm Structure
Firm Structure Large-Cap Mid-Cap Credit Real Estate Private Equity Private Equity Securities Onex Partners I ONCAP I Debt Five $1.7B C$400M Opportunity Investments Fund $475M Onex Partners II ONCAP II $3.5B C$574M Senior Credit Fund Onex Partners III $227M $4.3B Senior Celestica Floating Income $200
Slide 7: Assets Under Management
Assets Under Management Invest $3.6B of Onex’ proprietary capital Manage $7.7B of third-party capital - 10-year history - Substantial return to investors - Long-term fund structure - Stable annual management fee stream - Meaningful carried interest opportunity 3
Slide 8: $3.6 Billion of Proprietary Capital
$3.6 Billion of Proprietary Capital Private Equity 70% Large-Cap 66% Mid-Cap 4% Real Estate 2% Credit Securities 3% Other Investments 2% Cash and Near-Cash 23% Based on June 8, 2010 US/CDN foreign exchange rate, publicly traded investments at June 8, 2010 close, private equity and credit securities
Slide 9: $3.6 Billion of Proprietary Capital
$3.6 Billion of Proprietary Capital C$/share Cash and Public Investments $ 14.07 Private Investments 17.81 Total Proprietary Capital $ 31.88 Market Price $ 25.29 Discount $ 6.59 Discount to total asset value: 21% Discount on private investments: 37% Based on June 8, 2010 US/CDN foreign exchange rate
Slide 10: Third-Party Assets Under Management
Third-Party Assets Under Management ($ billions) $7.7 $7.5 $7.0 59% CAGR $4.0 $3.7 $1.5 $1.5 $1.5 $0.3 2002 2003 2004 2005 2006 2007 2008 2009 2010* * As at March 31, 2010 6
Slide 11: Meaningful Carried Interest
Meaningful Carried Interest Onex Partners I: $1.2B of third-party capital Distributed carry: $155M Embedded carry: $61M Total carry: $216M Onex Partners II & III: $5.5B of third-party capital 8% carry potential on: $2.0B of invested capital $3.5B of committed capital 7
Slide 12: Holding Company Income
Holding Company Income ($ millions) Management Fee Income* $ 101 Interest Income 11 Average Carry Distribution 30 Normalized Fees & Distributions $ 142 Average Cost of Operations 89 Average Fees & Carry Profit $ 53 * Includes structuring fees averaged over the last five years and monitoring fees. 8
Slide 13: Why Own Onex?
Why Own Onex? Very healthy portfolio of industry-leading businesses Persistent top-decile returns over 26 years Net returns exceed gross returns Long-Term NAV Growth Exceeding 15% Per Year 9
Slide 14: New Paradigm at Work
New Paradigm at Work Andrew J. Sheiner Managing Director
Slide 15: Much Better Business Model
Much Better Business Model 2000 2010 Third-Party AUM $200M $7.7B Annual Management Fees $3.7M $91M Investment Professionals 19 53 Carry Dollars at Work $24M $568M Gains Multiplier 0.93x 1.09x 1
Slide 16: Onex Partners III - Gains Multiplier
Onex Partners III - Gains Multiplier Onex LPs $800M $3,500M Gross $1,600M $7,000M carry Net $1,820M $6,300M Gains 1.28x Multiplier 2
Slide 17: Onex Partners III - Multiplier at Work
Onex Partners III - Multiplier at Work Gross Fund IRR Net Onex IRR1 15% 20% 20% 26% Onex’ Carried Interest 25% 31% 29% 36% 1 Assumes private equity investments held for five years. 3
Slide 18: Annual NAV Growth Model
Annual NAV Growth Model Gross Current Return on Expected IRR Net IRR1 Cash2 NAV Growth 15% 16% 3% 12% 20% 21% 3% 16% 25% 26% 3% 20% 29% 30% 3% 23% 75% 25% 1 Assumes private equity investments held for five years. 2 Assumes blended return on cash and OCP. 4
Slide 19: Why Own Onex?
Why Own Onex? Very healthy portfolio of industry-leading businesses Persistent top-decile returns over 26 years Net returns exceed gross returns Long-Term NAV Growth Exceeding 15% Per Year 5
Slide 20: Proven Investment Strategy
Proven Investment Strategy Nigel S. Wright Managing Director
Slide 21: Annual NAV Growth Model
Annual NAV Growth Model Gross Current Return on Expected IRR Net IRR1 Cash2 NAV Growth 15% 16% 3% 12% 20% 21% 3% 16% 25% 26% 3% 20% 29% 30% 3% 23% 75% 25% 1 Assumes private equity investment: held for five years. 2 Assumes blended return on cash and OCP. 1
Slide 22: Superior Long-Term Track Record
Superior Long-Term Track Record 26 ($ millions) Year Established Multiple of Cost1 Annual Rate of Return1 YEARS Pre-Fund 1984 2.9x 27% 29% ONCAP 1999 4.1x 43% IRR Onex Partners 2003 4.1x 74% Total: 3.4x 29% 3.4x CAPITAL 1 Based on realized and publicly traded investments as at March 31, 2010. 2
Slide 23: Proven Investment Strategy
Proven Investment Strategy 26 Focused investing - Corporate carve-outs/operational restructurings YEARS - Select industry build-ups Purchase price discipline 29% Prudent financial leverage IRR Active ownership - Develop independent market leaders 3.4x - Tangible cost savings CAPITAL - Capture transi
Slide 24: Strength During Downturn
Strength During Downturn Considerable cost-saving initiatives Margin improvement Strong free-cash-flow generation $1.2B of debt paydown in 2009 Taking advantage of credit markets 4
Slide 25: Private Companies: Conservative Valuations
Private Companies: Conservative Valuations Onex Partners Private Company Valuations 108% of cost at March 31/10 vs. 88% of cost at Sept. 30/09 Drivers of Valuation Increase Debt reduction: 53% EBITDA improvement: 47% Multiple expansion: <1% 5
Slide 26: Why Own Onex?
Why Own Onex? Very healthy portfolio of industry-leading businesses Persistent top-decile returns over 26 years Net returns exceed gross returns Long-Term NAV Growth Exceeding 15% Per Year 6
Slide 27: Private Operating Company Review: Carestream Health
Private Operating Company Review John McCoy, Director Carestream Health, Inc. Rochester, NY Kevin J. Hobert, CEO Acquired April 2007 Acquisition Cost: $471 million 1
Slide 28: Carestream Health Operating Performance
Private Operating Company Review Operating Operating Performance Performance Generated over $550M of free cash flow and reduced net debt by over $400M since acquisition Net debt to EBITDA at March 31, 2010 was 3.1x, providing a 25% EBITDA cushion Paid $144M of dividends since acquisition ($56M to On
Slide 29: Carestream Health Financial Review
Private Operating Company Review Financial Review At Acquisition Current* Revenue $2.5B $2.4B EBITDA $468M $493M Net Debt $1.9B $1.5B Net Debt / EBITDA 4.1x 3.1x Cumulative Dividends N/A $144M *As at March 31, 2010 and LTM March 31, 2010 3
Slide 30: Private Operating Company Review: Tropicana Las Vegas
Private Operating Company Review Andrew P. Lapham, Director Tropicana Las Vegas Hotel and Casino, Inc. Las Vegas, NV Alex Yemenidjian, Chairman and CEO Acquired May 2009 Acquisition Cost: $250 million 4
Slide 31: Tropicana Las Vegas Operating Performance
Private Operating Company Review Operating Operating Performance Performance YTD through March, Las Vegas has seen improvements in visitation (up 2%) and Strip gaming revenue (up 10%) However, ADR (down 2%) and occupancy (down 3%) continue to be off as the Strip absorbs the new supply of 7,000 hotel
Slide 32: Paradise Tower Standard Room - Before
Private Operating Company Review Paradise Tower Standard Room - Before 6
Slide 33: Paradise Tower Standard Room - After
Private Operating Company Review Paradise Tower Standard Room - After 7
Slide 34: Tropicana Las Vegas Financial Review
Private Operating Company Review Financial Review Tropicana Las Vegas emerged from Chapter 11 bankruptcy protection on July 1, 2009 Pre-bankruptcy, Tropicana Las Vegas generated average annual EBITDA of $39M from 2004 through 2007 Tropicana generated LTM net revenue at March 31, 2010 of $81M To fund
Slide 35: Private Operating Company Review: Sitel
Private Operating Company Review David R. Hirsch, Principal SITEL Worldwide Corporation Nashville, TN David Garner, CEO Acquired April 1998 Acquisition Cost: $251 million 9
Slide 36: Sitel Operating Performance
Private Operating Company Review Operating Operating Performance Performance Continued weakness in existing client volumes Despite a weak revenue environment, Sitel achieved an 80 basis point improvement in EBITDA margin in the LTM period ending March 31, 2010 relative to the same period last year S
Slide 37: Sitel Financial Review
Private Operating Company Review Financial Review Prior Year1 Current2 Revenue $1.7B $1.5B EBITDA $132M $132M Net Debt $621M $599M Net Debt / EBITDA 4.7x 4.5x 1As at March 31, 2009 and LTM March 31, 2009 2As at March 31, 2010 and LTM March 31, 2010 11
Slide 38: Private Operating Company Review: The Warranty Group
Private Operating Company Review Adam Reinmann, Principal The Warranty Group, Inc. Chicago, IL David L. Cole, Chairman and CEO Acquired November 2006 Acquisition Cost: $488 million 12
Slide 39: Warranty Group Operating Performance
Private Operating Company Review Operating Operating Performance Performance Recovery in global economic activity Growth in Latin American and Asian operations Strong performance of $2.3B investment portfolio through credit crisis Reduced expense ratio by 90 bps since acquisition 66% increase in net
Slide 40: Warranty Group Financial Review
Private Operating Company Review Financial Review At Acquisition Current* Revenue $1.2B $1.3B Net Income excluding Purchase Accounting $65M $108M Total Debt $200M $194M Debt as a % of Total Capitalization 28% 20% Cumulative Distributions N/A $130M *As at March 31, 2010 and LTM March 31, 2010 14
Slide 41: Private Operating Company Review: Hawker Beechcraft
Private Operating Company Review Nigel S. Wright, Managing Director Hawker Beechcraft Corporation Wichita, KS Bill Boisture Jr., Chairman and CEO Acquired March 2007 Acquisition Cost: $537 million1 1 Includes Onex investment of $52M in a series of purchases that occurred during the first quarter of
Slide 42: Hawker Beechcraft Operating Performance
Private Operating Company Review Operating Operating Performance Performance General aviation market has demonstrated signs of stabilization, albeit at weak levels Aggressively reducing the cost base through an initiative to remove $200M of non-variable costs from the business by 2012 through lean m
Slide 43: Hawker Beechcraft Financial Review
Private Operating Company Review Financial Review At Acquisition Current* Revenue $3.1B $3.2B EBITDA $431M $127M1 Net Debt $2.4B $1.8B Net Debt / EBITDA 5.6x 14.2x *As at March 31, 2010 and LTM March 31, 2010 1Current EBITDA excludes gains on debt repurchases, loss recognized on derivative instrumen
Slide 44: Private Operating Company Review: Allison Transmission
Private Operating Company Review Kosty Gilis, Principal Allison Transmission, Inc. Speedway, IN Lawrence E. Dewey, Chairman and CEO Acquired August 2007 Acquisition Cost: $763 million 18
Slide 45: Allison Transmission Operating Performance
Private Operating Company Review Operating Performance Commercial vehicle industry volumes bottomed in 2009 and have begun a slow recovery, though are still well below historical levels Allison’s exposure to a variety of end markets, including military trucks and hybrid transit buses, has allowed it
Slide 46: Allison Transmission Financial Review
Private Operating Company Review Financial Review At Acquisition Current* Revenue $2.4B $1.8B EBITDA $667M $541M Net Debt $4.2B $3.6B Net Debt / EBITDA 6.3x 6.7x *As at March 31, 2010 and LTM March 31, 2010 20
Slide 47: Private Operating Company Review: Center for Diagnostic Imaging
Private Operating Company Review Center for Diagnostic Imaging, Inc. Minneapolis, MN Robert V. Baumgartner, CEO Acquired January 2005 Acquisition Cost: $73 million 21
Slide 48: Center for Diagnostic Imaging Operating Performance
Private Operating Company Review Operating Operating Performance Performance Growing organically and through acquisition, with 30 facilities added since 2004 Volume pressure from high unemployment and lower consumer spending on discretionary procedures Well capitalized with low purchase basis Attrac
Slide 49: Center for Diagnostic Imaging Financial Review
Private Operating Company Review Financial Review At Acquisition Current* Revenue $101M $141M EBITDA $28M $39M Net Debt $86M $56M Adj. Net Debt / EBITDAR 3.7x 2.0x *As at March 31, 2010 and LTM March 31, 2010 23
Slide 50: Private Operating Company Review: Husky Injection Molding
Private Operating Company Review Husky Injection Molding Systems Ltd. Bolton, ON John Galt, President and CEO Acquired December 2007 Acquisition Cost: $622 million 24
Slide 51: Husky Operating Performance
Private Operating Company Review Operating Operating Performance Performance Successful implementation of Transformation Plan has driven significant savings, mitigating softer 2009 revenues Meaningful orders growth in all geographies year-to-date Strong underlying EBITDA margin improvement for the L
Slide 52: Husky Financial Review
Private Operating Company Review Financial Review At Acquisition Current* Revenue $1.1B $946M EBITDA $113M $157M Net Debt $380M $247M Net Debt / EBITDA 3.4x 1.6x *As at March 31, 2010 and LTM March 31, 2010 26
Slide 53: Private Operating Company Review: RSI Home Products
Private Operating Company Review RSI Home Products, Inc. Anaheim, CA Alex G. Calabrese, CEO Acquired October 2008 Acquisition Cost: $318 million 27
Slide 54: RSI Operating Performance
Private Operating Company Review Operating Performance Revenue has stabilized in the company’s base business Performance has been significantly better than the company’s peers Efforts to reduce costs and improve efficiencies are resulting in increased profitability Recently acquired Continental Cabi
Slide 55: RSI Investment Review
Private Operating Company Review Operating Performance Investment Review RSI is the largest bathroom cabinet manufacturer; third largest cabinet manufacturer overall $318 million investment in a preferred security with significant downside protection Onex entitled to get its capital back first plus
Slide 56: Private Operating Company Review: Tube City IMS
Private Operating Company Review Tube City IMS Corporation Glassport, PA Joseph Curtin, President and CEO Acquired January 2007 Acquisition Cost: $249 million 30
Slide 57: Tube City IMS Operating Performance
Private Operating Company Review Operating Performance Provider of outsourced industrial services to steel mills - Provides services at 74 customer sites in nine countries - Operates a global raw materials procurement network Offers a range of specialized services, primarily through long-term contra
Slide 58: Tube City IMS Financial Review
Private Operating Company Review Financial Review At Acquisition Current* Revenue $378M $380M EBITDA $91M $91M Net Debt $429M $400M Net Debt / EBITDA 4.7x 4.4x *As at March 31, 2010 and LTM March 31, 2010 32
Slide 59: ONCAP
ONCAP Michael Lay Managing Partner
Slide 60: ONCAP Overview
ONCAP Overview Established 1999 as Onex’ dedicated mid-market private equity platform 43% ONCAP I (1999): $400M (Onex - 25%) IRR - Acquired six companies - Strong performance 4.1x - 4.1x MOC (all > 2x) MOC - 43% gross IRR ONCAP II (2006): $574M (Onex - 50%) - 50% invested; 60% by mid-year 60% INVEST
Slide 61: ONCAP II: Value Creation
ONCAP lI: Value Creation LTM EBITDA Total Leverage $106M 4.3x $75M 2.9x At Acquisition LTM Through At Acquisition At April 2010 April 2010 Healthy investment portfolio; no leverage/liquidity issues Additional $45M equity invested to support 20 add-on acquisitions Dollar amounts are in companies’ fun
Slide 62: ONCAP Operating Company Review
ONCAP Operating Company Review Business Overview Largest manufacturer, marketer and distributor of sporting goods and team uniforms to the institutional and team sports marketplace in the United States Partnering with the senior management team to complete acquisition of the business July 2010 Serve
Slide 63: ONCAP Operating Company Review
ONCAP Operating Company Review Business Overview Largest full-service car wash chain in the United States – 65 car washes and 24 lube centers in 8 regions (washed 6.8 million vehicles in 2009) Acquired the business in April 2007 in partnership with senior management team Focus on acquisition growth
Slide 64: ONCAP Operating Company Review
ONCAP Operating Company Review Business Overview Leading provider of education and training services in the financial services sector in Canada (flagship course offering - Canadian Securities Course) Acquired the business in January 2006 in partnership with senior management team 50% of original inv
Slide 65: ONCAP Operating Company Review
ONCAP Operating Company Review Business Overview A leading global environmental services company, specializing in the management of contaminated soils and organic-based waste streams; public company (TSX: EG) Initial investment in March 2006; ONCAP invested additional capital in November 2006 and No
Slide 66: ONCAP Operating Company Review
ONCAP Operating Company Review Business Overview The largest operator of collision repair centers in the United States – 76 locations in Texas and Southern California Partnered with the senior management team to acquire the business in October 2008 - New Chief Executive Officer joined in September 2
Slide 67: ONCAP Operating Company Review
ONCAP Operating Company Review Business Overview Franchisor of a pizza restaurant company in the United States featuring an “all you can eat” format (currently 624 restaurants in the system) Partnered with the senior management team to acquire the business in June 2007 - New Chief Executive Officer
Slide 68: Persistent Performance
Persistent Performance Seth M. Mersky Managing Director
Slide 69: Private Equity Outperforms Public Markets
Private Equity Outperforms Public Markets 20 Year 10 Year 12% 8% 8% 6% 3% -1% 5 Year 3 Year 10% 5% 0% 1% -3% All returns to December 31, 2009. -6% 1 Cambridge Associates LLC U.S. Private Equity1 S&P TSX Private Equity Index net returns. 1
Slide 70: PE Industry – Post-Recession Performance
PE Industry – Post-Recession Performance 42% 40% 33% 30% 30% 29% 28% 22% 22% 20% 19% 18% 18% 18% 15% 14% 13% 12% 9% 6% 1% 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 Non-recession Recession Top quartile U.S. private equity performance by vintage year as at March 31, 2009. Source: Cambridg
Slide 71: Onex - Top-Decile General Partner
Onex - Top-Decile General Partner 29% 17% 8% 6% Onex1 Private Equity2 S&P3 TSX2 1 Onex private equity track record through March 31, 2010. 2 Cambridge Associates LLC U.S. Private Equity Index 20-year net returns through December 31, 2009 increased to reflect Onex’ estimate of carry and fees. 3 20-ye
Slide 72: Persistent Performance – Top-Quartile GPs
Persistent Performance – Top-Quartile GPs Relative performance (%)1 150 107 95 100 50 18 11 0 -2 -13 -50 -50 -75 -100 First Fund Follow-Up Fund 1st Quartile 2nd Quartile 3rd Quartile 4th Quartile Source: The Advantage of Persistence – How the Best Private Equity Firms “Beat the Fade”, The Boston Con
Slide 73: Mutual Fund Performance
Mutual Fund Performance Relative performance (%)1 350 ~300 300 250 200 150 100 50 ~10 ~10 ~5 0 ~-10 ~-5 ~-10 -50 ~-20 2002 2006 1st Quartile 2nd Quartile 3rd Quartile 4th Quartile Source: The Advantage of Persistence – How the Best Private Equity Firms “Beat the Fade”, The Boston Consulting Group. 1
Slide 74: Onex Process – Proven and Sustainable
Onex Process – Proven and Sustainable Acquiring Owning Supply chain Knowing where to look Working capital Having time to look Elimination of corporate overhead Protecting the downside Diversification of client base Labour relations 6
Slide 75: It All Adds Up
It All Adds Up 26% +9% +9% 8% Long-term Public Private Equity Top Quartile GP Equity Returns1 Outperformance2 Outperformance3 1 S&P 500 TR index 20 year return as at December 31, 2009. 2 Based on Cambridge Associates LLC U.S. Private Equity Index 20-year net returns through December 31, 2009 increas
Slide 76: Persistent Annual NAV Growth
Persistent Annual NAV Growth Gross Current Return on Expected IRR Net IRR1 Cash2 NAV Growth 15% 16% 3% 12% 20% 21% 3% 16% 25% 26% 3% 20% 26% 27% 3% 21% 29% 30% 3% 23% 75% 25% 1 Assumes private equity investments held for five years. 2 Assumes blended return on cash and OCP. 8
Slide 77: Persistent Performance
Persistent Performance Very healthy portfolio of industry-leading businesses Persistent top-decile returns over 26 years Net returns exceed gross returns Long-Term NAV Growth Exceeding 15% Per Year 9
Slide 78: Gerald W. Schwartz
Gerald W. Schwartz Chairman and CEO
Slide 79: ONEX.COM
TRIM ONEX.COM