It seems the private equity has started having its own share of problems. And like what happened in the investment banking world, the weakers ones may get merged or bought out by the stronger ones. UK’s 3i Group is now a candidate for a merger or a sell-out. According to a latest report in UK’s Telegraph, 3i may be merged with large PE funds like Kohlberg Kravis & Roberts (KKR) or Blackstone. There was also an earlier report of 3i merging with Candover Investment.
3i Group plc’s shares have risen up for the last two days on possibility of a merger with larger rivals. 3i’s shares in the last two days have risen to 234 pence from 212 pence. According to the report, traders have said a “defensive” merger with Blackstone or KKR could be a way for Britain’s oldest private equity group to resolve its problems.
3i’s investments have plunged in value by a fifth during the last quarter of 2008 and the stock has also fallen by more than 75% during the past one year. 3i has had changes in the top management recently. They recently appointed Michael Queen as Group Chief Executive as Philip Yea, who was the chief since July 2004, had to step down due to the present crisis.
The private equity firm is said to have a heavily indebted balance sheet, and 3i Group is said to be studying a merger to come out of the current mess. The net debt of 3i Group at end of 2008 was £2.11 billion and the available cash and credit lines was £839 million. 3i was intially a venture capital firm, and under Yea started expanding international presence and focusing more on later-stage and leveraged buyout type deals.
3i Group recently raised €37.3 million by selling its 48% stake in DIAB, the Swedish maker of core materials. It is expected that 3i will sell a string of assets from its portfolio of 450 companies to pay down its £2.1 billion of net debt.
Recently many private equity veterans have predicted an imminent shake-out in the industry. Carlyle Group co-founder David Rubenstein painted a bleak picture for private equity in 2009 at the recent SuperReturns Conference in Berlin. Bain Capital managing director Stephen Pagliuca said that he foresees a shake-out in the number of private equity firms at the same conference. The merger of 3i Group can be the beginning.
3i has also recently appointed Anil Ahuja, who was heading its India operations, as the head of Asia. 3i manages an investment portfolio valued at $920 million in the country. Some of its portfolio companies include Vijai Electricals, Nimbus Communications, International Tractors, UFO Moviez.
3i Group has also invested in Piramal promoted Indiareit real estate fund. Last year in April 2008, 3i Group raised an India-focused infrastructure fund at $1.2 billion, exceeding its target of $1