Onex Corp. will restructure to reduce expenses after halting fundraising for its flagship private equity fund, saying it’s too difficult to raise money right now.
“Current market conditions are contributing to lengthy and time-consuming fundraising processes for many private equity funds,” the firm said in its first-quarter earnings statement. “Accordingly, the company has decided to pause fundraising for Onex Partners VI until the fundraising environment improves.”
Toronto-based Onex will conduct a review of its costs, leading to a second-quarter restructuring charge that it expects will be less than $20 million, chief financial officer Chris Govan told investors.
Rising borrowing costs, reluctant banks and recession forecasts have all weighed on the buyout industry. What’s more, some institutional investors such as pension plans have run out of new capital to commit to private equity firms after reaching allocation limits during last year’s market decline.
Onex targeted $8 billion for the sixth version of its flagship fund when it began seeking investors last year, but had generated just $2 billion as of February, including $1.5 billion of its own money.
Asset Sales
Onex is exploring ways to free up cash to support the business and boost its stock price. One option is to sell Onex-owned assets and use the money to repurchase shares, “until the share price makes any sense to us,” chief executive officer Bobby Le Blanc told investors.
Le Blanc officially took the helm Thursday from Gerry Schwartz, who led the private equity firm for almost 40 years and remains its controlling shareholder.
The firm said it has completed the second close on a small-cap fund known as Oncap V with $520 million in commitments from investors, which includes $250 million from Onex.
Onex has already announced one significant restructuring this year, walking away from a division that offered private wealth management to affluent individual investors. Onex took a non-cash impairment charge of $171 million for shuttering Gluskin Sheff & Associates Inc. following an agreement in March to transfer the wealth-management team to Royal Bank of Canada.
That charge led to loss of $232 million in the first quarter, or $2.87 per share, compared with a profit of $164 million a year earlier.
