3i realises £307m as it continues to slim portfolio

The listed investment management firm anticipates future realisations from among its “stronger” assets, following the exit of nine investments in the first six months of its financial year.

3i reported realised proceeds from its private equity business of £307 million ($466 million; €434 million) in the six months until the end of September, and invested £208 million of cash.

There are further realisations planned for the second half, 3i chief executive officer Simon Borrows said on an earnings call. Its total proceeds from realisations stood at £359 million.

Future realisations are likely to come from its stronger assets, Borrows said in a results statement.

Numis Securities speculated in a note that there are “clear exit plans” being formulated for discount European retailer Action, which is continuing with its international expansion and has appointed a new chief executive and financial officer. However it is understood that currently there are no plans.

The listed investment management firm completed nine exits, generating a 1.6x money multiple, Borrows said. The firm remained net divestors in the first half of the financial year and continued to focus on reducing its number of portfolio companies.

“A generally constructive market in the first quarter allowed us to dispose of some of our older, more challenged assets,” Borrows said the statement.

Its exits included of Azelis, Labco, Touchtunes, Soyaconcept, Boomerang, Inspecta, and partial exits of its quoted holding in Quintiles, as well as Scandlines and India’s UFO Moviez through an initial public offering.

The firm intends to commit €500-750 million of proprietary capital to four to seven investments a year “subject to available opportunity and attractive pricing. However, as we start to observe a change in the cycle, we are finding more investment opportunities to consider and in the first half we announced and completed two investments totalling €272 million,” Borrows said in the statement.

3i invested in Weener Plastic Packaging Group and Euro-Diesel, which sit in its “core industrials sector in Europe” and made a further investment into German transition testing company GIF through the buyout of the founding family.

Its portfolio now stands at 53 companies and five quoted holdings and the firm continues to target a portfolio of 40 private equity investments.

When asked by Private Equity International on the call about high valuations, Borrows said that the firm had seen an active market for deals, and “pulled the trigger on two and we got close on another two” but did not proceed as “the price we thought was unjustified.”

Borrows noted on the call that the macro-economic conditions had deteriorated over the course of the year, adding that “we anticipate that the current environment will provide attractive opportunities.”

On the prospect of rising interest rates, Borrows noted that the firm’s average gearing has come down to 2.5x EBITDA. “I don't think a change in rates will have a particular impact on our portfolio and I think the change will be gradual. We are not highly geared.”

The company has a net debt of £12 million.

The firm has not been directly impacted by the slowdown in China, but there had been a “general tightening in the US” and companies in the industrial sectors indirectly exposed to oil and gas have felt the impact.

Portfolio company JMJ, which is a safety management consultancy focused on projects in the oil and gas industry, has seen projects cancelled and its budgets cuts, Borrows said. DynaTect Manufacturing has a lot of customers that sell into the US and the oil and gas sector and “they are seeing a knock-on effect”.

In light of uncertainties in the Eurozone, depressed commodities prices, concerns about growth in China and other emerging markets, 3i chairman Simon Thompson said in the statement that “we are seeing the benefit of the strategic decision to reduce our presence in Asia and South America and to focus on our core sectors in northern Europe and North America.”

Its portfolio value stood at £4 billion, with its net asset value at £3.9 billion. Total assets under management were £13.5 billion, of which £10.1 billion was third party capital, and £3.6 billion was private equity. Total fee income was £58 million.