Proposed Investment in Onex Partners V LP

Memorandum to: State Investment Council
From: Christopher McDonough, Director
Subject: Proposed Investment in Onex Partners V LP

The New Jersey Division of Investment (“Division”) is proposing an investment of up to $100 million in Onex Partners V LP (“Fund V”). This memorandum is presented to the State Investment Council (the “Council”) pursuant to N.J.A.C. 17:16-69.9.

Onex Partners V LP will continue the Division’s successful relationship with Onex Corporation (“Onex”) or (“the Firm”), which has dated back to 2006. Fund V will continue Onex’ success in creating long-term value for their portfolio companies and investors through building world-class businesses in partnership with exceptional management teams. Fund V will focus on making control investments in businesses organized or primarily domiciled in the U.S., Canada, and Europe.

The Division is recommending this investment based on the following factors:

  • Strong Performance from an Existing Relationship: Onex has consistently generated strong returns through the Onex Partners Funds, which have generated a gross 2.5x Multiple on Invested Capital (“MOIC”) and 32% gross Internal Rate of Return (“IRR”) on the realized, substantially realized and publicly traded investments as of 12/31/16. Including unrealized investments, the total track record represents a 2.1x gross MOIC and 28% gross IRR as of 12/31/16. In aggregate, Onex is a top performing manager, with a gross IRR of 20% across Funds I-IV as of 12/31/16, which is top quartile against a pooled benchmark of funds across the same vintage years as of 9/30/16.
  • Focused Investment Strategy: Onex’ strength and differentiation often lies in complex transactions, where the Firm frequently emerges as the preferred buyer given the team’s success in transforming corporate subsidiaries and supply divisions into profitable businesses throughout the Firm’s over 30-year history. The team spends their time on opportunities where history and experience in particular sectors give them an edge, and they can effectively drive value. Their largest areas of investment, specifically Industrials, Financials, and Healthcare, have also generated the strongest financial returns. The Firm seeks situations with controllable outcomes where they can identify areas of operational improvement in labor, supply chains, and manufacturing in order to effect change and build market leaders.
  • Significant Alignment of Interests: Onex Corporation (TSE: ONEX), a publicly traded entity, will provide a significant commitment to Fund V of $2 billion. Onex has been the largest LP in each of its flagship Partners Funds, having committed a total of $4.7 billion across Funds I-IV. Individual members of the Onex team will also make significant personal commitments, which is expected to constitute at least 2% of the aggregate capital commitments.

A report of the Investment Policy Committee (“IPC”) summarizing the details of the proposed investment is attached.

Division Staff and its private equity consultant, TorreyCove Capital Partners, undertook extensive due diligence on the proposed investment in accordance with the Division’s Alternative Investment Due Diligence Procedures.

As part of its due diligence process, staff determined that the fund has not engaged a third-party solicitor (a “placement agent”) in connection with New Jersey’s potential investment.

We will work with representatives of the Division of Law and outside counsel to review and negotiate specific terms of the legal documents to govern the investment. We have obtained a preliminary Disclosure Report of Political Contributions in accordance with the Council’s regulation governing political contributions (N.J.A.C. 17:16-4) and no political contributions have been disclosed. We will obtain an updated Disclosure Report at the time of closing.

Please note that the investment is authorized pursuant to Articles 69 and 90 of the Council’s regulations. Onex Partners V LP will be considered a private equity buy-out investment, as defined under N.J.A.C. 17:16-90.1.

A formal written due diligence report for the proposed investment was sent to each member of the IPC and a meeting of the Committee was held on May 12, 2017. In addition to the formal written due diligence report, all other information obtained by the Division on the investment was made available to the IPC.

We look forward to discussing the proposed investment at the Council’s May 24, 2017 meeting.

Source: State of New Jersey State Investment Council