3i remains optimistic despite credit crunch

3i, the global private equity firm, remains bullish despite credit market turbulence. It argued that the doubling of its level of investment was due to an upward creep in average deal size and not to lack of investment discipline.

Global private equity group 3i more than doubled its level of investment in the last six months.

Philip Yea:
3i chief

It invested £1.23 billion (€1.76 billion; $2.59 billion) in the six months to the end of September in comparison with £589 million in the same period last year.

Chief executive Philip Yea said this did not mean the firm had been undisciplined in the six months. “We’ve been in the position for a while now of saying that leverage multiples were very high. Now, we only do 60 investments a year. The biggest factor behind the increase in investment amounts is increasing the average deal size as opposed to number of investments, so there’s been no change in the selectivity that’s going on,” Yea said.

3i also realised £1.04 billion during the six months in comparison to £849 million previously. This figure includes the group’s proceeds from its £540 million sale of Nordic service provider Coor Service Management to Cinven last week at an enterprise value of 17.5 times EBITDA, according to someone close to the deal. The firm made £337 million profits on divestments up from £216 million previously.

It also made a gross portfolio return of 14.3 percent in comparison with 11.6 percent previously and a net portfolio return of £453 million with a total return of £512 million, a 12 percent return on shareholders funds. It issued a dividend of 6.1p per ordinary share. The firm has £8.18 billion of assets under management, up from £7.03 billion previously. The assets were split between £5.13 billion on its balance sheet and £3.05 billion invested for third party funds, a NAV per share of £10.07.

The liquidity problems in the global credit markets will settle eventually, Yea said. He remained uncertain as to the effect the credit crunch would have on consumer and business confidence. “Today there’s no sign of any material change in our own portfolio, so we just have to see what plays through in the world economy over the next period.”

Yeo reiterated his message at the firm’s pre-close results that 3i’s diversified regional presence and business model should allow it to progress despite market conditions tightening.

3i’s managing partner in charge of buyouts Jonathan Russell said the firm was receiving one and a half times less debt to EBITDA multiples on bids and was needing to return to club deals with banks to underwrite bids.

Russell said the firm has been buoyed during the market turbulence by its “inspired” decision to found its own banking team three years ago. “We’ve brought all this talent into the business and it’s grown within the business and it’s given us some real direction as to how we manage that process and resource it to cope with events like this,” Russell said. This had also allowed the firm to nurture six banking relationships which had remained strong through the recent turbulent months, he said.