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ONEX Corporation’s Latest IPO a Winner

Emerald Expositions Events Inc. (NYSE:EEX), one of ONEX Corporation’s (TSX:ONEX) many private equity investments, went public April 28. Emerald was up 15% in its first day of trading, so ONEX cashed out some of its shares through the US$264 million IPO.

Emerald, which operates more than 50 business-to-business trade shows in the U.S., looks to be a winner, which should make ONEX shareholders even more money once the 180-day lock-up expires.

I’m a fan of ONEX. Exits like this one are a big reason why.

ONEX acquired Nielsen Expositions from Nielsen N.V. Ordinary Shares for US$950 million in June 2013. Although the trade show business was profitable — US$97 million EBITDA in 2012 from revenues of US$183 million — it wasn’t a core piece of the Nielsen group of companies.

ONEX paid slightly less than 10 times EBITDA for the company, which was immediately renamed Emerald Expositions. Since being acquired by ONEX, Emerald has been on a buying binge, making one significant acquisition in 2014 — George Little Management for US$335 million — and 12 tuck-in purchases since then ranging in price from US$5 million to US$36 million. Not once did it pay double-digit multiples for a purchase.

Flash forward to Emerald’s 2017 IPO, and you have a company generating adjusted EBITDA of US$152.1 million from US$323.7 million in revenue. Emerald is the largest operator of business-to-business trade shows in the U.S. with a 2% share of the U.S. exhibitions market — a market that’s expected to grow by 4.6% annually over the next five years, reaching $16.1 billion by 2020.

Emerald’s growth strategy includes expanding outside the U.S., continuing to grow its net square feet of exhibition space, boosting attendance at each of its shows, increasing prices for its booths and attending its shows, launching new shows, and making accretive acquisitions.

That last one is critical because the industry is ripe for consolidation and it’s got a good track record buying other companies.

ONEX financed the purchase of Emerald with US$350 million in equity (limited partner investors put in US$265 million and ONEX put in the rest) and US$600 million in debt.

ONEX sold 7.5 million shares (assuming underwriters’ option exercised) netting US$82.3 million. It continues to own 74.5% of the company with its 53.8 million shares valued at US$1.1 billion. Emerald intends to pay a quarterly dividend of $0.07 per share, so ONEX will continue to earn approximately US$3.5 million each quarter until it starts unloading its shares.

ONEX has not indicated how long it plans to hang on to its shares, right now it’s sitting on an annualized return of 34.9% since its 2013 acquisition.

That last number is a big reason why investors ought to consider owning ONEX shares. Gerry Schwartz and company are excellent at doing deals where everybody wins.

Emerald gets to carry on growing, and ONEX gets to move on to its next profitable acquisition. As private equity firms go, it’s one of the best.

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Fool contributor Will Ashworth has no position in any stocks mentioned.

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