Is Onex’s Exit from Private Wealth Another Weight on Its Share Price?

On a sleepy Friday with the week’s trading winding down, Onex Corp. (CA:ONEX, US:ONEX) announced on March 24 that it was shuttering its Gluskin Sheff private wealth management business almost four years to the day after the private equity firm announced it was buying the Toronto-based independent wealth manager for $445 million.

“Gluskin Sheff has a long and successful track record of delivering innovation, results and high client satisfaction in the Canadian wealth management sector,” read the press release. “We are proud of our association with the team and are grateful for their contributions. I am confident in the value they will continue to drive for their clients,” said Bobby Le Blanc, president of Onex.

The Gluskin Sheff advisers and their teams will all be offered employment with RBC Wealth Management Canada. Any operations not transferred will be wound down.

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“The announcement marks the end of the Gluskin brand, which is likely to be viewed as an unsuccessful acquisition by Onex,” The Globe and Mail reported Scotia Capital analyst Phil Hardie’s note to clients. “That said, we believe it is the best way forward for Onex.”

When Onex acquired the independent wealth manager in March 2019, it paid a 28% premium to Gluskin Sheff’s closing price the day before its announcement. However, as recently as 2014, the then publicly-traded company’s shares valued the business at more than double what Onex paid. 

Founded in 1984 by Ira Gluskin and Gerald Sheff, the eponymous firm went public in 2006, hit the skids a couple of years later during the financial crises, but recovered by 2013. However, by then, the founders had both departed, suing their former firm over retirement benefits due to them. They settled for $13.8 million in 2018.

As part of Onex’s announcement, it said it would create alternative asset investments for RBC Wealth Management Canada’s advisors and clients, so it’s not a total loss. 

Lost Groove

ONEX stock has lost a third of its value over the past five years. As recently as early 2022, its share price flirted with $100. While this makes the best of a bad situation, long-time shareholders and prospective ones must be wondering when the private equity firm will get its groove back.

In November, Onex founder Gerry Schwartz announced that he would step down as the firm’s CEO in May after 38 years in the top job. In his place steps 23-year Onex veteran Bobby Le Blanc, with Schwartz remaining chairman. Before joining Onex, Le Blanc spent seven years at Berkshire Hathaway (US:BRK.A, US:BRK.B) and General Electric (US:GE) before that. 

Le Blanc believes that the move enables the company to focus on what it does best.

“This represents an exciting step forward for our business, allowing us to focus on investing, asset management and product development while leveraging the scale and strength of one of the country’s largest wealth management platforms,” Le Blanc said.

While that’s true — and, to be honest, optimism is usually pretty thick in these situations — Canaccord analyst Scott Chan believes the move slows the firm’s ability to grow its fee-generating assets. It’s set a target of $65 billion in fee-generating assets by 2026. As of Dec. 31, 2022, Onex had $34.1 billion in fee-generating assets.

ONEX stock was removed at the begining of February from the S&P/TSX Canadian Dividend Aristocrats Index. And while the biggest exchange-traded fund that tracks that gauge, the iShares S&P/TSX Canadian Dividend Aristocrats Index ETF (CA:CDZ), is down 5.3% in the almost two months since that move, the private equity firm’s stock price has done worse, falling 8%.

It’s too early to tell what this move will mean long-term for Onex’s share price. Until Le Blanc puts his stamp on Onex in the second half of 2023, an investment in the private equity firm is likely dead money. 

 

This story originally appeared on Fintel.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.