3i’s Queen blames lack of deals on ‘subdued’ market

Fewer business owners are willing to sell in volatile markets, says 3i chief executive Michael Queen, as deal-flow stagnation continues to frustrate the listed group.

Deal activity has been stymied by recent market volatility, with owners reluctant to sell their companies in an uncertain economy, according to Michael Queen, CEO of listed private equity group 3i. This echoes a general frustration among some private equity firms at the lack of opportunities available in the market. 

Queen was speaking during the firm’s pre-close briefing for the five months to 31 August 2011. He said exit activity could accelerate as corporations flushed with cash look to make acquisitions, though he argued that activity would probably not pick up for another year. Queen suggested that there were about 2,000 private equity-owned companies in Europe ready to be sold, and that increased activity by corporations would allow this to happen.

3i’s portfolio will be marked down on 30 September compared to 31 March because of volatile stock markets, Queen said. Earlier this month, 3i was dropped from the FTSE 100 after its share price hit a 52-week low of 197p. Most listed private equity groups have been trading a wide discounts to net asset value in recent months, leading to some discontent among shareholders.

However, 3i insists that it remains confident in its medium term investment strategy. In fact, it is so confident that it plans to pay out a bigger dividend than previously forecast. In May this year, the firm set out a benchmark 15 percent net return averaged out over any five-year period; the revised strategy won’t be announced in full until November, but 3i says the revised figure will be “based on the performance of the group and starting from a substantially higher level than the current dividend”.
3i’s private equity results for the 5 months ending 31 August show that it invested more than five times as much growth capital as it did during the equivalent period last year – £117 million, up from £21 million in 2010. Exit value also increased substantially, with buyout realisations of £360 million, up from just £3 million during the same period in 2010.

Queen insisted the firm would continue to invest “conservatively and selectively”. He also talked about its £134 million recent investment in Action, a discount retailer; Queen highlighted this as a promising consumer sector in the current economic climate, and said that 3i will continue to invest there.