Altas Partners is pleased to announce that Akshay Kumar has joined the firm as a Principal.

Akshay joins Altas from Blackstone, where he focused on investment opportunities across a wide variety of industries. Prior to joining Blackstone, Akshay worked at TPG in San Francisco, focusing on investment opportunities in the consumer, retail, and healthcare sectors. Akshay holds a Bachelor of Arts degree in Honours Business Administration from the University of Western Ontario’s Richard Ivey School of Business (Ivey Scholar, Gold Medalist) and a Master of Business Administration from Harvard Business School.

Altas Partners is pleased to announce that Michael Shay has joined the firm as Vice President of Portfolio Solutions. In this newly created role, Michael will focus on providing operational and strategic support to enhance the value of Altas’ businesses.

Prior to joining Altas, Michael worked at Scotiabank, where he supported an enterprise-wide transformation program, and at Bain & Company, where he led projects across private equity due diligence, corporate strategy, and performance improvement.

Michael holds a Bachelor of Arts in Honours Business Administration from the Richard Ivey School of Business (with Distinction, Ivey Scholar), a Bachelor of Engineering Science in Electrical Engineering from the University of Western Ontario (with Distinction), and a Master of Business Administration from Northwestern University (with Distinction).

Andrew Sheiner worked for 17 years at Onex Corporation, a public company in Canada that has several private investment arms. One of those is Onex Partners, a large-cap-focused group he helped establish in 2001.

It was during his time at Onex that Sheiner learned the importance of flexibility in investment hold periods. The traditional private equity hold period – generally from three to five years – was established in the early days of the industry, in the 1970s and 80s. The structure that evolved was a 10-year fund life, with up to five years for deploying capital and five years for selling investments.

But the rigidity of that structure could also be frustrating, and Sheiner said he often heard concerns from limited partners about the quick investment/exit cycle of traditional private equity.

“An astute investor said to me, ‘This business is crazy; we invest in your funds, we buy businesses through those funds, you then sell them to another fund – we’re then invested in that fund.’ There’s a lot of friction in that transaction. And that would seem suboptimal and not ideal for management teams either,” Sheiner says in an interview.

Sheiner had the benefit of flexibility at Onex and decided, on formulating a strategy for his own shop, that he would apply those lessons to the new venture.

His firm, called Altas Partners, was founded in 2012 on three principles: the firm would be extremely discerning about its acquisitions; it would focus on high-quality businesses; and it would apply time flexibility to its investments, rather than abiding by a strict deadline.

Altas is happy to buy only one or two businesses a year, and hold those investments, if appropriate, for a decade or longer. It can also sell investments earlier if that makes better financial sense, Sheiner says. “We understand that those businesses are precious and hard to come by and if we have the good fortune to own one, we and our partners would feel it’s unfortunate if we had to sell prematurely,” Sheiner says.

The firm closed its debut fund in 2016 on $1 billion, and its second fund on $3 billion last year. Altas acquired eight businesses so far, investing about $4 billion of equity, and sold two of them. “That’s consistent with what we established with our investors and the strategy we set out to pursue, which is not to be rigid. Rigidity in time horizon is not helpful as an owner and investor,” he says.

Altas is an example of a growing desire on the part of GPs to break out of the confines of the traditional private equity fund structure.

For certain companies, GPs would like more time to see their plans through; to make sure they are not getting out of the company while there is still more growth to capture; and to avoid the pressure of selling at the wrong time just for the sake of delivering liquidity back to investors.

“We’re hearing with some consistency GPs saying, ‘We’re sick of selling our best assets to other private equity firms for them to hold it for the next five years and double or triple their money, when we could have held it,” says an LP who has seen this trend. “The challenge is balancing the need for liquidity.”

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LONG DEPLOYMENTS

There’s another factor at play as well: GPs are taking much longer to deploy capital into new investments in the high-priced environment. The total number of deals done over the past five years is down 25 percent from 2014, according to Bain & Co. The calculation becomes: rather than make a bet on something new and uncertain, why not stick with an asset you know intimately, that you’ve grown and improved, with a future path to prosperity that you helped design?

These are the sorts of considerations GPs must contemplate, and LPs appear to be on board. Investors play a vital role in the evolution of this longer-hold strategy, whether it involves raising funds with long-hold attributes, or investing in existing portfolio companies across funds that require investor approval. Without the approval of the investor community this longer-hold trend would not likely be growing as quickly as it is today.

“Over time LPs have seen that, ‘Wow, you’re selling this good company out of your portfolio, and we’re buying it elsewhere in our portfolio, how does that help me? I would have been better off if you had held it another three years,’” says Adam Howarth, managing director and head of portfolio management Americas at Partners Group.

“People would have been delighted 15 or 20 years ago to hold great companies longer if they had the opportunity. But the industry perhaps hadn’t evolved to the point where managers and investors were like-minded around the value of doing that,” Sheiner says.

Buyouts spoke to dozens of sources in the market, including limited partners, investment bankers and GPs, about the growing trend of PE managers holding certain assets longer. The consensus was that the trend is real, but not everyone agreed on the risks and benefits of the strategy.

LPs especially gave mixed reviews: would longer hold periods ultimately lead to stronger returns? Or were they just a way for some larger firms to build revenue and assets under management? What’s clear, though, is that there is a paradigm shift in the industry, where all parties agree that, for some investments, the traditional PE hold period is not appropriate. This will likely help shape private equity as it continues to evolve. “If I still believe in the future of an asset and new deals are scarce, why not stay invested in the asset,” says Hugh MacArthur, partner at Bain & Co.

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MEAT ON THE BONE

Longer investment holds in private equity are not the norm. In fact, hold periods in general are falling. Median hold periods fell to 4.5 years for deals exiting in 2018, compared with 5.9 years for investments sold in 2014, according to Bain & Co’s 2019 Global Private Equity Report.

“The peak in 2014 was driven by many assets invested just ahead of the global financial crisis that ended up being held in portfolios longer than expected/planned,” MacArthur says.

But with certain assets, GPs are getting much more creative than simply shopping them through an auction. This quicker turnaround likely has something to do with the amount of capital flowing into private equity funds, and the prospect of a firm being able to sell a business at a robust price.

North American private equity and mezzanine funds raised $274.9 billion as of November, up from last year’s tally of $178.7 billion around the same time. And purchase price multiples generally remain high, at an average of 11x to 12x across all industries, Buyouts reported in the third quarter.

What’s more, equity checks in deals have increased to 50-60 percent from 20-35 percent, meaning firms are taking even more risk in individual deals, Sumit Rajpal, global co-head of Goldman Sachs’ merchant banking division, told Buyouts in the third quarter.

“If you take this angle or perspective that there’s more uncertainty about where we are in the economy – and if you’re trying to reduce your risk – finding something you know well makes sense,” Ian Fowler, co-head of Barings Global Private Finance Group previously tells Buyouts. “Especially if you think there’s more meat on the bone.”

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BREATHING ROOM

DuBois Chemicals is a nearly 100-year-old company that supplies specialty chemicals to help facility operations in sectors like manufacturing, food and beverage, paper and pulp and water treatment.

Around 11 years ago, DuBois’ owner at the time, JohnsonDiversey, decided to carve it out to raise money. DuBois’ current CEO, Jeff Welsh, was helping JohnsonDiversey package up assets for sale, and worked to bring in potential buyers for DuBois.

Eventually Riverside Co. emerged as the buyer for DuBois, with Welsh moving in as CEO. Riverside held the company until 2012, when it sold to Aurora Capital. Aurora owned it until 2017, when Jordan Co. and repeat investor Riverside acquired DuBois, Welsh says in an interview.

Finally, earlier this year, Altas acquired DuBois, a private equity owner that, for the first time, brought flexibility around the length of its hold period. “It’s important to have that optionality, to be able to hold a business if you go into a situation where it might be better to hold it for a longer period of time,” Welsh says. That means being able to hold through a down cycle, when the business may underperform, and sustain it until it emerges into a better environment.

Welsh adds that the long-holding mindset should not be totally tied to anticipated investment holds. “Potentially there’s the option of investing in things that are going to have a little longer time horizon than they would in sort of a traditional three-to-five year plan,” Welsh says. “You have to be a little cautious as a portfolio company in lulling yourself into thinking this will undoubtedly be a long-term hold.”

While DuBois has grown over its private equity ownership years, it only has around 8 percent market share, Sheiner says.

Outside of a long-hold option built into a fund structure, like Altas or Boston-based Cove Hill Partners, GPs are achieving longevity through traditional M&A processes. Many GPs retain minority stakes in businesses they are selling to be able to continue capturing a company’s growth. Others are taking an even more aggressive approach by re-investing in existing portfolio companies held in older funds.

Late last year, Nordic Capital sold its stake in eResearchTechnology out of an older fund, and at the same time re-invested through its new fund for a smaller interest. Nordic sold down its 70 percent stake in ERT to hold an equivalent stake alongside Paris firm Astorg as part of the investment, announced in October.

GTCR last year re-acquired AssuredPartners less than four years after selling the company to Apax. GTCR owned the company from 2011 to 2015 before exiting for a 4x return, Wall Street Journal reported in February 2019.

Growth investor TA Associates recently launched a unique fund that would give it a way to retain interests in companies it was selling where it saw more room for growth.

The fund targets companies in TA’s portfolio that have achieved certain performance goals. The beauty of the strategy is that while giving the firm more time with growing assets, it also allows TA to deliver proceeds back to investors in older funds.

TA Select Opportunities Fund is targeting $1 billion, a fundraising goal several investors expect the firm to hit.

“[TA’s fund represents] the ability to… continue to play in those assets where they think having longer hold periods is beneficial but at the same time, taking some capital off the table and derisk it,” according to an investor who committed to the fund, who requested anonymity.

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THE LP VIEW

Sources say the trend toward longer-term holds is being driven by limited partners. For LPs, longer hold periods could mean less cost, especially as related to those costs involved in transactions, sources said. Each time a company turns over, there are fees related to the deal, which sources described as “frictional” costs.

“The friction in these things is tremendous,” DuBois’s Welsh says. “Every time we’ve sold this business over the years, there’s a 5, 6, 8 percent friction rate where you’re spending that in transaction costs. I’ve talked to LPs who say, ‘What have I gained? I’ve bought and sold this asset and had 5, 6 or 8 percent come out of it as friction.’”

But LPs also have concerns about how these longer holds are executed, especially when it comes to a GP’s new fund buying companies out of older funds.

Cross-fund investments cause a bit of consternation on the part of LPs because of an inherent conflict: A GP’s new fund wants to pay a low price for the company, while the old fund wants to sell for as much as possible. It’s essential, then, in cross-fund investing, for a GP to get a market value from an external investor, sources said.

“[The GP] has to go through various gymnastics to get that socialized [with investors] and approved through the advisory board and figure out a way to get pricing that’s deemed fair to all parties involved,” according to Scott Reed, co-head of private equity USA at Aberdeen Standard Investments.

One way this could happen is the GP brings in an external minority investor to share control and contribute equity into the deal, Reed says. “This helps provide a third-party external valuation of the pricing in which the transfer occurs,” he said.

Not every LP is enamored with the idea of private equity managers holding investments longer. “There’s something to be said for the discipline you get with traditional fund structure; you know you’ve got five-to-seven years with assets, and then it’s time to move on,” the LP said. “There’s very few businesses that compound at 15 to 20 percent returns forever.”

Risks include a company that is being held longer suddenly encountering a slowdown that cuts into profitability. The GP will have to spend material time and resources on the company rather than working to deploy capital into new investments.

“A large portion of fund LPs would say they don’t want that distraction,” Reed says.

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Altas Partners is pleased to announce that Nick Mancini has joined the firm as a Director.

Prior to joining Altas, Nick worked at TPG in San Francisco, where he evaluated investment opportunities across a variety of sectors. Nick began his career in the Technology Investment Banking group at Morgan Stanley in New York. Nick earned a Bachelor of Science degree with majors in Finance, Accounting, and Economics from Boston College (summa cum laude) and has a Master of Business Administration from Harvard Business School.

Altas Partners (“Altas”), a long-term oriented investment firm, announced today the final closing of its second fund, Altas Partners Holdings II LP (“the Fund”), with US$3 billion of limited partner capital commitments. The Fund closed at its hard cap and was oversubscribed.

“We are grateful for the enthusiastic response to the Fund,” said Andrew Sheiner, Founder and Managing Partner of Altas, “and we remain singularly focused on creating lasting value for our investors as an engaged owner of high-quality businesses.”

Altas differentiates itself through a distinctive approach to investing, building its portfolio slowly and carefully over time and enjoying a flexible time horizon as an owner. With the Fund, Altas will continue to execute the firm’s strategy of investing in one or two high-quality, market-leading businesses each year.

“We are fortunate to enjoy the support of a wonderful group of global partners,” added Katie Taylor, Chair of Altas. “We look forward to building upon our strong foundation in the years ahead, and to enhancing our reputation as a partner of choice for management teams.”

About Altas Partners
Founded in 2012, Altas Partners is an investment firm with a long-term orientation focused on acquiring significant interests in high-quality, market-leading businesses in partnership with outstanding management teams. The firm manages approximately US$7 billion on behalf of endowments, foundations, family offices, public pension funds, and other institutional investors. The firm’s past and present portfolio companies include DuBois Chemicals, University of St. Augustine for Health Sciences, Tecta America, Hub International, PADI, Medforth Global Healthcare Education, Capital Vision Services (MyEyeDr.), and NSC Minerals. For more information, please visit www.altas.com.

Andrew Sheiner’s firm generally makes two investments a year, which it can hold for as long as 15 years

Altas Partners, a firm founded on the idea that some private-equity investments can benefit from having more time to ripen, has amassed $3 billion for its second fund.

The vehicle, Altas Partners Holdings II LP, was oversubscribed and closed at its hard cap, the Toronto-based firm said Monday. The new fund was raised with the help of Park Hill Group, according to a Securities and Exchange Commission filing.

At $3 billion, Altas’s new fund is triple the size of its maiden offering, which closed at $1 billion in 2016.

Altas, which was founded in 2012 by former Onex Corp. executive Andrew Sheiner, is one of the pioneers of longer-term private-equity investing. The firm can hold companies it buys for as little as five years, which is standard for private-equity investments, or as long as 15 years, which is beyond the 10-to-12-year maximum hold time typical for private-equity managers.

The firm’s second vehicle will continue the strategy of the first fund, said Mr. Sheiner, who is the firm’s managing partner as well as founder. Altas generally makes two investments a year, targeting deals worth $250 million to $1 billion in equity in sectors including industrials, health-care and education. The debut fund made five investments.

Longer-term investing has become more common over the past decade, as firms and investors have come to see benefits in having the option of a longer hold period. Longer-term funds also typically charge lower management fees than traditional buyout vehicles.

Firms that have launched longer-term funds in recent years include Vista Equity Partners, CVC Capital Partners, KKR & Co. Inc. and Blackstone Group Inc. So far this year, 15 longer-term funds have closed on a total of $5.3 billion, according to data provider Preqin Ltd.

Altas’s latest fund has already made its first investment, backing specialty chemical supplier DuBois Chemicals Inc. in a deal signed over the past summer. Earlier this year it closed on the $400 million purchase of the University of St. Augustine for Health Sciences, an educator of physical and occupational therapists with campuses in California, Texas and Florida.

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LAURA COOPER AND CHRIS CUMMING, THE WALL STREET JOURNAL

LONG-TERM INVESTOR ALTAS PARTNERS CLOSES FUND II AT $3 BLN HARD CAP

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• Fund II is triple the size of its 2016 predecessor
• More than 50 LPs signed on, a source said
• Altas Partners was an early adopter of long-term investing

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Altas Partners, a pioneer of long-life investing, has wrapped up its second fund at a hard cap of $3 billion, Buyouts has learned.

Altas Partners Holdings II is triple the size of its predecessor, which secured $1 billion in 2016. Prior to Fund I, the Toronto-based private equity firm invested deal-by-deal by partnering with select investors.

Fund II was backed by more than 50 limited partners, a person with knowledge of the matter told Buyouts. New and returning investors included endowments and foundations, family offices and pension plans, the source said.

Individual investors in Fund II included Louisiana State Employees’ Retirement System, which committed $100 million; San Mateo County Employees’ Retirement Association, which committed $10 million; and School Employees’ Retirement System of Ohio, which committed $50 million.

Altas declined to comment on the details of its fundraising activity.

Altas was founded in 2012 by Andrew Sheiner, a former senior Onex Corp executive, to make control investments in hard-to-replicate businesses. Unlike other PE investors, which typically hold portfolio assets for three-to-five years, the firm invests with an indefinite horizon, focusing on owning assets long enough to generate maximum value.

Altas picks only one or two companies for acquisition per year, investing $250 million to $1 billion or more in each. This deliberative deal pace is reflected in the sourcing process, which averages 11 months from initial engagement to completion.

Fund II will continue this strategy, Sheiner told Buyouts in an interview.

Altas was an early adopter of long-life investing, a trend that has grown in popularity in the PE industry. A survey published this month by Dechert found 51 percent of general partners are exploring a long-hold fund, up from 32 percent last year, while 27 percent have already established a vehicle.

Sheiner said Altas will continue to differentiate itself in a potentially growing field. “Our model is to be a singularly-focused investor and owner, with one team and one strategy,” he said. “This allows us to be discerning and enjoy the flexibility to own each business for five years or 15 years, whatever is appropriate.”

Altas has made eight investments since inception. Its most recent is DuBois Chemicals, a Cincinnati-based specialty chemical solutions provider acquired in September from Jordan Company.

Altas also this year sold two portfolio companies, among them MyEyeDr, a Vienna, Virginia-based vision care practices network. It was acquired by Goldman Sachs in August, generating a return of about 3.5x, Buyouts reported.

In addition, Altas in January sold NSC Minerals, a Saskatoon, Saskatchewan-based salt products maker. The buyer was Kissner Group, which is backed by Metalmark Capital and other investors.

Altas has been adding to its investment team of late. Recent hires include Partner David Brent, who joined in 2018 from Apollo Global Management. The firm also this year appointed Kathleen Taylor, the former CEO of Four Seasons Hotels and Resorts, to the new position of chair.

Other senior team members include Managing Partner Scott Werry and Partners Christopher McElhone, Paul Nicoletti and Damon Conway.

Fund II’s close brings total commitments managed by Altas to about $7 billion.

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KIRK FALCONER, PE HUB; BUYOUTS

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Altas Partners has completed its previously announced acquisition of DuBois Chemicals Inc. (“DuBois”), a premier provider of customized and value-added specialty chemicals solutions and services to more than 15,000 customers.

Founded in 1920, DuBois researches, develops, manufactures, and supports a broad range of customized specialty chemical products and related equipment. DuBois is a solutions provider to its customers, helping them address their significant performance, quality, cost, safety, and compliance issues and challenges.

Headquartered in Cincinnati, Ohio, DuBois leverages its proprietary chemistries and unique on-site service and support capabilities to offer a compelling value proposition by reducing downtime, minimizing defects, and extending equipment life for its customers’ applications. As a result, DuBois maintains strong loyalty across a diverse customer base that relies on its technical expertise and broad suite of product solutions to ensure their machinery, processes, and systems run seamlessly.

For more information, please visit www.duboischemicals.com.

Altas Partners today announced that it has completed the sale of Capital Vision Services, LP (“CVS”), a leading provider of management services to vision care practices. CVS provides its affiliated, independent MyEyeDr. optometrists with a complete array of financial, marketing, human resources, and accounting services, along with managed care credentialing and claims processing.

CVS was sold to West Street Capital Partners VII, a fund managed by the Merchant Banking Division of Goldman Sachs. Financial terms of the transaction were not disclosed.

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ABOUT ALTAS PARTNERS

Founded in 2012, Altas Partners is an investment firm with a long-term orientation focused on acquiring significant interests in high-quality, market-leading businesses in partnership with outstanding management teams. The firm manages more than $6 billion on behalf of endowments, foundations, public pension funds, and other institutional investors. The firm’s past and present portfolio companies include University of St. Augustine for Health Sciences, Tecta America, Hub International, PADI, Medforth Global Healthcare Education, Capital Vision Services, and NSC Minerals. For more information, please visit https://www.altas.com.

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FOR FURTHER INFORMATION:

Aisha Sánchez
+1 (416) 306-9800
asanchez@altas.com