3i Europe Closes Shops, Sacks 185

Responding to current market conditions, 3i Group PLC, Europe’s largest private equity firm, has decided to close seven of its smaller offices in the UK and Europe and issue pink slips to 185 employees, or 17% of its workforce.

The move comes just shortly after 3i began gobbling many smaller VC firms in Europe. In February 2000, 3i’s acquisition activities gained speed when it bought Munich-based technology venture capital investor Technologieholding for an estimated GBP$166.17 million (US$243.14 million). By May, 3i had bought Finnish venture capital firm SFK Finance for GBP$10.283 million. And in September, it purchased the remaining 80% it didn’t already own in Bank Austria TFV High Tech-Unternehmens for GBP$65.3 million. Additionally, as recently as March, 3i acquired Atle, a Swedish private equity investor.

However, the acquisitions are not the reason behind the 3i’s decision to tighten its belt, according to Liz Hewitt, 3i’s director of corporate affairs. “We made acquisitions in areas where we didn’t have a presence and those offices are still working out,” she said.

What’s more, 3i’s U.S. division is not expected to be effected and will continue to make investments in communications, wireless, Internet technology and enterprise software.

The U.S.-based business remains uneffected because its “investments in the states continue to increase and be successful,” Hewitt said.

Drastic Times, Desperate Measures

While its investments in Europe and the UK are not unsuccessful, the general economic slowdown and the poor conditions in the technology sector -which have accounted for 85% of 3i’s investments thus far this year, according to VentureXpert – has played a role in 3i’s decision to trim its fat.

The firm has reported that it invested GBP$600 million in the six months ending Sept. 30, and will likely invest the same amount in the coming half-year, however, the company is going to be steering clear of technology investments, Hewitt said.

“We are matching our resources to how we view the market here. Our aim is to increase the size of the larger offices, while closing down our smaller offices. We are keen to make sure all our offices are fully busy,” Hewitt said.

A third of 3i’s cuts will be on the European Continent and two-thirds will come in the UK. After the reorganization, 3i will have 36 offices operating in 16 countries.

“The offices that are closing are smaller, they have less than 10 people working in each. The locations were close to other offices so some employees will be moving and will still be investing in the same areas,” Hewitt said. Additionally, a portion of employees that were part of investing teams will now be concentrating on the firm’s existing portfolio companies.

As part of the restructuring, 3i Director Rod Perry will assume responsibility for technology investments across the business. Director Jonathan Russell will take on similar responsibility for the management buyout business, and Martin Gagen, director of the U.S. business, will also take on responsibility for Asia Pacific.

Still Strong In The U.S.

As if to prove that its U.S.-based operations are still firing away on all cylinders, 3i recently participated in an ongoing round of venture funding for Plano, Texas-based SyChip Inc.

The fabless semiconductor company has so far soft circled on $15 million, and hopes to nab an additional $5 million within the next four weeks. 3i led the first close with a $7 million commitment, and was joined by Alliance Technology Ventures, Pacesetter Capital and Lucent Technologies Inc.

“We’re still looking at three or four small funds that could each put $1 million or so into the company,” said Marko Maschek, a director in 3i’s Waltham, Mass.-based office. “We’re really looking for funds that have good contacts, especially manufacturing ones in Asia.”

Maschek, who is from Germany, added that the European layoffs will not affect 3i’s ability to move companies like SyChip into overseas markets.

Prior to its most recent financing, SyChip had been solely funded by Lucent New Ventures Group. As part of the soft circle, Lucent lost its majority interest in the issuer.

Dan Primack contributed to the reporting of this story.

Danielle Fugazy can be contacted at: Danielle.Fugazy@tfn.com