3i to return £700m to shareholders

Global private equity firm 3i has announced that proceeds from realisations generated profits of £576 million (€845 million; $1.075 billion) and that it plans to return £700 million to shareholders in its preliminary results for the year to 31 March 2006.

3i said in a statement that realisation proceeds on the sale of £2.207 billion of assets generated profits of £576 million, up from £250 million in the previous year. The firm said that realisations were made at an uplift of 35 percent over opening values.

During the year, 15 portfolio companies achieved IPOs and £229 million of realisation proceeds were raised through sales at the time of flotation or subsequently. Refinancings generated £168 million, while 10 secondary buyouts realised £404 million for 3i.

In total, 3i returned £831 million, up from £501 million for the year to 31 March 2005, representing a return of 22.5 percent on opening shareholders’ funds.

3i also said that it proposes to return £700 million to shareholders, expected to be made through a bonus issue of listed B shares, accompanies by a share consolidation, in July.

The firm had said in its pre-close announcement in March of this year that it intended to hand back at least £500 million to shareholders, the same figure it had proposed to return at its AGM in July 2005. 3i chairman Baroness Hogg said in the statement that the £500 million announced at the AGM had “essentially been completed”.

Over the year, 3i invested £1.1 billion in 58 companies, up 47 percent from the £775 million invested in the previous year. The firm also invested a total of £111 million in externally managed funds, such as its $20 million commitment to Israeli technology VC Giza Venture Capital’s $150 million fourth fund in December of last year; and $20 million to Quadriga Capital Russia Private Equity’s second vehicle in February 2006.

Philip Yea, 3i CEO, said in the release that the firm will increase the level of late-state investments in its venture capital business. As a result, 3i has amended its cash to cash IRR target for its venture capital operations to 25 percent.

Yea also announced that, in order to supplement carry schemes, 3i has introduced “market aligned co-investment schemes whereby members of our investing team make personal investments alongside 3i and third party investors’ capital”.

3i, which has recently set up operations in Shanghai and Mumbai and is currently building its growth capital unit in New York, said that over half of its assets are now based outside of the UK.

In Asia, investment increased 29 percent. In terms of realisations, Japan accounted for the largest proportion of capital returned to investors, followed by India and China, with IPOs making up 50 percent of divestments, although trade sales were the dominant exit route in Japan.

Buyouts currently represent 35 percent of 3i’s portfolio; growth capital 31 percent; venture capital 20 percent; and 14 percent for smaller minority investments. 3i said that it intends to realise that latter portfolio “progressively in the near term”.

In addition, 3i said that Peter Mihatsch, a member of the firm’s group board since 2004, has been appointed chairman of a new advisory board for 3i’s German business. As part of the move, Mihatsch will step down from the 3i Group board.