3i, listing badly(2)

3i continues to shed staff and sell assets, and has given up on the idea of raising another buyout fund any time soon. These are anxious times for one of the UK’s oldest and best-known private equity groups

In February, 3i Group sold Canadian manufacturer Mold-Masters to trade buyer Milacron for CAD$ 975m (£615 million), netting the UK-listed firm a respectable 2.6x return. 

Most firms would be happy with that in the current climate. But particularly 3i. Last year, according to its recent results, its realisation proceeds for the nine months to 31 December 2012 fell to £210 million, down from £741 million in the same period the previous year. Meanwhile, as new chief executive Simon Borrows cut headcount by a third and closed a number of offices, its investment activity totalled just £93 million, down from £366 million the previous year. (Not surprisingly, the firm had fewer resources available to work on deals.)

In the interim statement, Borrows insisted that 3i would be much more active in the coming months “with a number of key realisations as well as an increasing level of investment activity”.

But while the Mold-Masters deal suggests the first part of his strategy is bearing fruit, the second will be more difficult. It can’t invest from its current funds, because they’re all past their investment deadlines. And Borrows admits that he doesn’t see 3i raising a pan-European buyout fund again “for several years”.

The firm is making noises about investing from its balance sheet, or even trying to focus on managed accounts (which could tap into its strengths in infrastructure and debt). It’s also talking about raising a $500 million Brazil-focused fund, to target mid-market companies in the consumer and business services sector. But with its most recent buyout fund – Eurofund V, a €5 billion 2006 vintage – currently valued below cost, according to LP sources, it remains to be seen what investor appetite will be for any of this.

Clearly something has to give – and the success of its current realisation drive will undoubtedly be critical to 3i’s long-term survival prospects. Here’s hoping it has a few more Mold-Masters up its sleeve.