3i Sees `Tricky' Investment Environment as Costs DeclineKiel Porter
3i Group Plc, Britain’s biggest publicly traded private-equity firm, warned of a “tricky” environment for new investments as a glut of capital pushes up sellers’ asking prices.
The firm reaped 677 million pounds ($1.1 billion) from selling assets in the year through March, up from 606 million pounds in the year-earlier period, London-based 3i said in a statement today. 3i spent 337 million pounds on new investments, up from 149 million pounds in the year-earlier period.
Record low interest rates and growing investor confidence in Europe’s economy are fueling an increase in the prices private-equity firms pay for targets. On average, the firms loaded the companies they acquired with debt equivalent to 4.7 times their earnings in 2013, the most since 2008, according to data compiled by Bain & Co.
“There is an excess of capital looking for investment opportunities and this has driven up sellers’ price expectations,” Chief Executive Officer Simon Borrows said in the statement. “We have benefited from this in our realization program, however, as we review new investment, we will need to continue to be patient and disciplined.”
3i has been pressed by investors to slow the pace of investments, cut costs and return more cash to investors. The company said today it will pay a final dividend of 13.3 pence a share, more than the 5.4 pence Bloomberg dividend forecast. It also trimmed operating costs by 70 million pounds, more than its target of 60 million pounds.
The stock rose 4 percent to 393.5 pence as of 9:05 a.m. in London for a market value of 3.8 billion pounds. The stock has advanced 2.2 percent this year, outperforming the FTSE 250 index’s 0.5 percent gain in the period.
3i said net asset value rose to 348 pence a share from 311 pence at the end of March 2013.