3i deal, exit activity slows in 2012(2)

The UK firm’s interim results, which also detailed a notable increase in NAV, come a few days after it revealed activist investor Edward Bramson had started to build up a stake in the company.

3i, the London-listed group, today revealed interim results that painted a subdued year in terms of private equity activity for the firm.
The group posted a 4.8 percent increase in NAV in the three months to 31st December 2012, up to £2.86 (€3.34; $4.54) per share. A number of the firm’s largest companies also performed well, which was demonstrated by an increase of 8 percent in value weighted earnings in the portfolio.
But disposal activity slowed down in the nine months to 31st December 2012, results showed: private equity realisations proceeds totalled £210 million over the period, compared to £741 million during the same period the year before.
Total realisations, which also include divestments made by the firm’s infrastructure and debt management divisions, reached £318 million over the last nine months of the year, compared to £751 million in the nine months to 31st December 2011.
The period also saw a significant softening in deal activity. Private equity investments reached £93 million in the nine month to the end of 2012, with no investment at all recorded in the last quarter, compared to £366 million in the nine months to 31st December 2011.
A source familiar with the matter said that both results stemmed from 3i’s focus on restructuring and cost-cutting last year, with less resources dedicated to carving out deals and divesting assets.
Dwindling share price and weak results from its buyout arm had led to a new chief executive taking the helm at 3i last June, and the firm has since then embarked on a thorough restructuring process. The company announced plans to cut 160 staff – more than a third of its workforce – and close or reduce the size of 11 offices last July.
But this focus on restructuring had started to bear fruit, Simon Borrows, chief executive at 3i, said in a statement. Interim results showed a decrease in gross debt at the company, from £1.25 billion as at 30th September 2012 to £1.21 billion at the end of December. The company expects to achieve its target of bringing debt down to £1 billion by June 2013, and is confident it can beat its operating costs reduction objectives for the financial year ending March 2013.
That would allow the firm to refocus on asset disposals and investments this year, Borrows said. “Over the last six months, in addition to implementing the re-organisation and cost reduction programme, we have been busy preparing for realisations within private equity. We expect to see the benefits of this coming through over the next 18 months, with a number of key realisations as well as an increasing level of investment activity.”
People with knowledge of the company said that new deals would have to be made with 3i’s own cash reserve, as its current vehicles are now past their investment deadline. The firm posted £1.2 billion in liquidity as at 31 December 2012, including £736 million in cash.
The publication of 3i’s results comes a few days after the firm disclosed that Sherborne Investors, a group led by activist investor Edward Bramson, had been buying its shares. This is the second such occurrence in a year for 3i, after activist manager Laxey Partners took a stake in the company last June.
In a call with journalists, finance director Julia Wilson declined to comment further on the share acquisition by Sherborne, other than to say there had been no communication between 3i and the parties involved.