3i sees high asset prices hindering new deals

LONDON (Reuters) - Private equity firm 3i Group, which saw the value of its portfolio rise 15 percent last year, warned intense competition from rival buyout firms could stymie new deals as the private equity industry thaws.

3i III.L said the value of its portfolio rose to 321 pence a share as its stakes were revalued, sending its shares up 8 percent to 289.7p at 1134 GMT.

Private equity firms, which spent much of the last two years fixing ailing portfolio companies, have started to pursue new deals in recent months as company earnings have picked up and the availability of credit has improved.

As many private equity firms have rushed back to engage in mergers and acquisitions (M&A), 3i said it took a cautious approach to new deals, put off by high asset prices fuelled by fierce competition.

Buyout firms have some $500 million (340 million pounds) of capital to deploy on some estimates and have been scrapping over assets they view as attractive, such as pet goods retailer Pets at Home and diagnostics business Sebia.

“We expect that overhang of capital to be around for the next 18 months or so, so it’s a pretty competitive market out there,” Chief Executive Michael Queen told reporters on a conference call.

3i invested in two new portfolio companies over the course of the year, including an investment in soft drinks group Refresco, its first deal from a new 1.2 billion euro growth capital fund.

The group invested a total of 386 million pounds compared with 968 million the previous year as the industry’s investments sunk to their lowest in a decade.


The performance of 3i’s portfolio came in at the top of analyst expectations as it reported a total return of 16 percent, turning around a negative return of -56 percent last year.

Analysts see 3i, which takes a conservative approach to portfolio valuation, as likely to report improvements in NAV over the coming year. Oriel Securities lifted its half year target range to 345 to 355 pence from 330 to 340 pence.

Realisations from asset sales of 1.39 billion pounds marginally exceeded the previous year, thanks in part to the disposal of Nordic healthcare group Ambea to rival private equity shop Triton.

While acknowledging the prospect of “anaemic growth”, Queen said 3i is looking at a number of interesting buyouts deals across Europe.

India is the strongest single market for new deals opportunities, where the firm is looking at businesses catering for the emerging middle class and supplying the country’s growing infrastructure needs, Queen said.

3i declared a total dividend of 3 pence.

Editing by Dan Lalor and Elaine Hardcastle