3i targets US and German deal flow

The London-listed firm intends to beef up its New York and Frankfurt offices.

London-listed 3i is switching focus to the US and Germany where the firm is seeing stronger deal flow and less competition as it continues to take advantage of robust mergers and acquisitions markets, 3i chief executive Simon Borrows said on a full-year earnings call. The firm, which Borrows said takes a “disciplined approach” to M&A, intends to add more staff to its New York and Frankfurt offices.

During FY 2016, 3i made 12 full realisations and its portfolio reduced from 65 to 52 assets taking it closer to its long-term objective of 30 to 40 portfolio companies. Its private equity holdings generated realised proceeds of £796 million ($1.2 billion; €1 billion) and were key to driving its results.

Eurofund V, a $5 billion 2006-vintage vehicle, was “trading very well and had very strong exits”, Borrows said.

Private equity gross investment returns stood at £1 billion underpinned by strong performance from a number of 3i’s key investments such as Dutch retailer Action, European ferry operator Scandlines, gym chain Basic-Fit and transmission testing company ATESTEO (formerly GIF), 3i said in an earnings statement.

Meanwhile, total net returns across private equity, debt and infrastructure amounted to £824 million or a total return on equity of 22 percent, up from last year’s £659 million.

Recent exits for 3i include baby products brand Mayborn Group to Ping An Insurance-backed company Shanghai Jahwa, which generated a 3.5x return; jewellery company Amor to Gilde Buy Out Partners, which generated a 2.5x return; and industrial testing company Element Materials Technology to Bridgepoint, which generated a 3.9x return for the firm, as reported by Private Equity International.

Last year, 3i invested £365 million in three new portfolio companies: Audley Travel, Weener Plastic Packaging and EURO-DIESEL.

“These strong FY2016 results demonstrate 3i’s continued momentum in the face of challenging macro-economic conditions,” Borrows said.

Operating cash profit generated was £37 million, up from £28 million a year earlier. Total return on shareholders’ funds stood at 21.7 percent, compared to last year’s 19.9 percent.