UPDATE 3-Britain's 3i to invest $842 mln in mid-sized businesses

Wed May 14, 2014 11:03am EDT

* Full-year NAV per share 348 pence vs forecast 332-344p

* Divestments totalled 669 mln stg, more seen on the way

* CEO says to avoid auctions, costly deals when investing

* Shares up 4 percent (Add banker, analyst comments)

By Sophie Sassard and Pamela Barbaglia

LONDON, May 14 (Reuters) - British private equity firm 3i will stay away from bid battles and expensive deals as it seeks to learn from past mistakes when investing a planned 500 million pounds ($842 million) in mid-sized businesses over the coming years.

The owner of women's fashion retailer Hobbs and Tommee Tippee baby bottle maker Mayborn spent much of 2012 and 2013 restructuring after shareholders criticised weak results from its buyout business and a poor share price performance.

CEO Simon Borrows has cut costs, divested some businesses and worked on turning round others and, helped by recovering financial markets, 3i reported a 12 percent rise in its net asset value per share to 348 pence for the year ended March.

That beat analyst forecasts for 332-344 pence and sent the company's shares up around 4 percent on Wednesday.

"I expect the pace of realisations to not slow down for another one to two years and portfolio disposals will significantly exceed new investments," said Rob Jones, equity analyst at Liberum.

3i said its investment portfolio will be slashed and focused to around 30 companies from an existing 81. Such a process could take around three years, Jones said. He believed that the private equity firm would realise another 650 million pounds of exits in the next 12 months.

Borrows said 3i would be patient and disciplined when reviewing investment opportunities, as a flood of capital and low interest rates were driving prices up.

"The minute you jump into an auction process you're looking at double-digit-multiples," said Borrows, adding that 3i tended not to pay more than 8 times earnings before interest, tax depreciation and amortisation (EBITDA) for its investments.

FOUR SIZABLE INVESTMENTS

3i could spend an average 70 million per deal going forward, Jones said. It would continue to focus on mid-market investments in its core business services, consumer, healthcare and industrials sectors in Northern Europe and North America.

The firm has recently made four sizable investments: European discount fitness operator Basic-Fit; GIF, a Germany-based specialist in transmission testing; JMJ, a global management consultancy; and a substantial further investment in ferry operator Scandlines.

In total, its cash investments were 372 million pounds including third-party funds in the year ended March, compared with 149 million pounds the previous year, of which 276 million pounds involved 3i's own capital.

3i said it also completed 669 million pounds in divestments in the year ended March.

After the recent initial public offering of its U.S. animal health business Phibro, German car parts maker Hilite could be the next business put on the block, Oriel Securities analysts said. They are forecasting 600 million pounds of divestments this financial year.

A sector banker mentioned discount retailer Action as the crown jewel of 3i's portfolio. With EBITDA of between 125 and 150 million euros, Action is a key asset and could be 12 months away from an IPO.

Action, which is headquartered in Amsterdam, offers a mixed product range that includes household goods, cosmetics, personal care and DIY. 3i has so far prioritized an aggressive plan to grow the business in France and Germany with 80 to 100 stores to be launched in these countries before starting to review exit options, according to the banker.

3i confirmed a final dividend of 13.3 pence per share, bringing the total for the year to 20.0 pence per share.

($1 = 0.5939 British Pound) (Editing by Jason Neely and Mark Heinrich)

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