3i sits pretty on cash pile as M&A returns

LISTED buyout titan 3i said it was entering 2010 with “increased firepower” for new acquisitions as it reported a drop in disposals and investment activity yesterday.

The group raised £270m from realisations in the third quarter, bringing the nine-month total to £777m – below the sum of £942m generated in 2008. Net cash inflow of £231m was used to pay down the firm’s debt to £643m. The company said the third quarter figure was respectable given the dearth of corporate activity during the three months to Christmas.

3i put £249m into investments over the three quarters, significantly down from £841m a year earlier.

The private equity operator now has £2.3bn cash on its books, up from £2bn in September. Communications director Patrick Dunne said: “We’ve got substantially increased firepower and we have a good opportunity with our growth capital business. The general macro-economic background remains fragile, so we’ll be taking a calm, measured approach. But we’ve got a good pipeline [of investments].”

Growth capital accounted for just £68m of 3i’s investments in the past nine months, down from £290m in 2008. Dunne said the group’s planned £1bn growth capital fund, first mooted last year, was still “at the exploring stage”.
3i has indicated its attention will fall on smaller, high-growth companies as it looks to deploy some of the £2.3bn of cash it has at its disposal this year. The anticipated launch of an externally-funded growth capital investment vehicle, originally mentioned by the company last year, will mark a return to its roots after several years of focussing on larger transactions.

It is thought 3i will tap third-party investors for up to £1bn for the fund, which will buy minority stakes in small companies with the potential for rapid expansion.

Heading up 3i’s growth capital team is Guy Zarzavatdjian. A finance graduate of the Dauphine University of Paris and holder of an MBA from INSEAD, Zarzavatdjian joined 3i in 1987 and spent several years as its country managing director in France, establishing its business in the Benelux region in the late 1990s.

Growth capital and buyout deals under his belt have involved such firms as supply chain company Supergroup, French property firm Se Loger, Dutch mattress manufacturer Crown Bedding and French private transport group Keolis.

3i has assets worth £1.6bn in its existing growth capital portfolio, which includes companies like fast food chain Giraffe and snack producer Fosters Traditional Foods Group. It has just £30m of external money in growth capital, however, hence the planned fundraising.