Chief executive Philip Yea said that the investment criteria over the past 12 months – and for the foreseeable future – favoured businesses with recurring income streams and defensive qualities. He added that deal terms with banks were now closer to those of three years ago but that it would be some time before it was possible to judge the full effects of the credit crunch.
Bruno Deschamps, 3i’s head of France, warned that with a couple of exceptions there would be few mega deals before 2010, but was similarly emphatic about the need for a selective approach to investments.
“You would expect the market to come to a complete stop but the reality is that in Europe we have made six or seven deals since the credit crunch, some of which have been of significant size,” added Deschamps, who was previously an operating partner at US LBO firm
In its preliminary results, 3i reported 47 new investments. Although this was down from 2006–07’s tally of 62, total values were up, rising from £1.576bn to £2.16bn. This was largely due to an increase in average investment size from £26m to £37m in the current period.
Total returns amounted to £792m, an 18.6% return on opening shareholders’ funds, although this was down from the £1.075bn and 26.8% reported for last year. This was, however, close to the group’s five-year average of 20.4% said Baroness Hogg, 3i’s chairman, in a statement.
As a result, realisation proceeds were down, dropping from £2.438bn in 2006–07 to £1.742bn in the latest reporting period, as had been predicted in previous 3i results. Realised profits on disposals also dropped, from £830m to £523m.
Despite the group’s commitment to investments with recurring income streams, 3i reported a slight drop in portfolio income during the period, down from £253m in 2006–07 to £227m this year.
As had been previously reported, 3i repeated that it would gradually phase out its exposure to venture capital and early-stage investing. The group said that, across business lines, venture capital would still be reported as a separate business until the portfolio was disposed of and no new investments would be made. Later-stage technology investments have been rolled into the growth capital business, which 3i said had performed well during 2007–08.