3i Says Earnings at Firms ‘Softening’ as Asset Sales Jump

3i Group Plc, Europe’s biggest publicly traded private-equity firm, said earnings at some of the companies it owns have been “softening” since November as it ramped up the pace of asset sales.

The firm reaped 751 million pounds ($1.18 billion) from disposals in the nine months through December, up from 398 million pounds in the year-earlier period, London-based 3i said in a statement today. The firm invested 530 million pounds in the period, up from 510 million pounds.

“The operating environment is challenging given the deterioration in the macro-economic outlook and continued market uncertainty,” Chief Executive Officer Michael Queen said in the statement. “Conditions have not improved since” November, “which has been reflected in a softening in the earnings performance of some of the portfolio over this period.”

3i, one of the U.K.’s oldest private-equity firms, said in November it would more than double its dividend for the year after the European sovereign debt crisis cut the value of its assets by 11 percent at the end of September. Queen boosted the dividend to help meet a target of 15 percent return on equity over a five-year period. He is also cutting costs and jobs.

‘Increasingly Vulnerable’

Asset sales in the third quarter included 200 million pounds in proceeds from the disposal of MWM Holding GmbH, a German engine maker, Julia Wilson, 3i’s finance director, said today in a conference call. New investments totaled 82 million pounds, down from 183 million pounds a year earlier.

“We continue to believe 3i is increasingly vulnerable to a major restructuring or bid approach,” Iain Scouller, an analyst at Oriel Securities Ltd., said in a note today. “There does not appear an immediate catalyst such as realization gains or multiples on comparable listed mid and small caps to start moving the net asset value upwards again.”

Scouller estimates that 3i shares are trading at a 35 percent discount to net asset value. The shares slid 1.6 percent to 182.1 pence in London trading at 8:40 a.m. today, giving the company a market value of 1.77 billion pounds.

Dealmaking activity has slumped to “extremely low levels” and is “particularly hard to predict” in 2012 largely because of uncertainties surrounding the euro region, 3i’s Wilson said.

Private-equity firms announced $26 billion in deals in the last quarter of 2011, a third less than in the same period a year earlier, as the euro debt crisis deepened, leading banks to curb lending and companies to hold onto their assets.

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