3i Launches "Activist Investment" Team

James Quinn writes in the Daily Telegraph:

British private equity house 3i has hired Bruce Carnegie-Brown to lead its new push into activist investing in large quoted companies.

Mr Carnegie-Brown is to head a new team which will focus on taking stakes in companies where it is not appropriate to launch a full-cash offer.

His appointment is something of a coup for 3i chief executive Philip Yea, as this is the first role Mr Carnegie-Brown has taken since standing down as the chief executive of insurance broker Marsh earlier in the year.

3i's initial push will be in consumer and industrial firms with market caps of more than US$1 billion. And Yea says 3i is seeking "private equity-style" returns:

"There are some opportunities where the all-cash offer may not be delivering for other people, where a different approach might work," Mr Yea said. "We see this as a medium-term value creation journey, it's not a trading position."

Financing for the team will initially come from 3i's own balance sheet, although it is thought possible that a specific activist fund could be raised in the medium term dependent on the team's success.

Comments

[Ian]

Good FT article on this:

3i/private equity

Published: November 29 2006 20:04 | Last updated: November 29 2006 20:04

Famed for hammering on the gates, some of private equity’s barbarians are coming round to the idea of making an appointment and knocking politely. 3i Group, the UK’s largest listed private equity house, said on Wednesday it had set up a team that would buy minority stakes in listed companies and use those positions to effect change.

This sounds suspiciously like what an activist hedge fund does. 3i, however, stresses that it is not interested in “militating for change” in the way activist funds usually do on corporate governance issues. Rather, it hopes to work with overlooked or unloved companies that might benefit from 3i’s support over the long term – a nice activist, in other words. Initially the stakes will be funded from its own balance sheet. 3i is not the first to try its hand at taking stakes. Compatriot SVG Capital has done it for a while. Earlier this year, Blackstone of the US bought 4.5 per cent of Deutsche Telekom.

Traditional buy-outs provide full scope to gear up, change management and restructure operations. Buy-outs, however, are increasingly difficult to pull off at reasonable prices. In the UK, successfully completed deals this year amounted to just $3.5bn by the end of last month – less than a quarter of 2005’s full-year total. Easy credit and big cash balances at rival trade buyers (as well as the machinations of real activists) have pushed up valuations and emboldened management teams and shareholders at bid targets.

Being prepared to take minority stakes extends the industry’s field of play. With $250bn of uninvested private equity capital worldwide to put to work, and a bigger range of competitors trying to eat your lunch, there is pressure to cast the net wider. Whether it will still be possible for the industry to generate buy-out-like returns (and justify performance fees) without full access to the usual array of levers, remains to be seen.

[John]

Ian: Excellent FT piece, thanks for posting it here.