![3i - Go to home page [Accesskey '0']](images/generic/logo.gif){kind=logo}
Report and accounts 2006
Our business
The Group's investment focus is on buyouts, growth capital and venture capital. At 31 March 2006: Buyouts represented 35% of our portfolio; Growth Capital 31%; and Venture Capital 20%.
Additionally, we have a portfolio of Smaller Minority Investments, which accounts for 14% of the portfolio. It is our objective to realise this portfolio progressively in the near term.
We are a knowledge-based company providing market access, insight for investment decision making and the ability to add significant value to the companies in which we invest.
We use our international network to identify and assess a wide range of investment opportunities, selecting only those that meet our return and quality criteria. Having made an investment, we then work in active partnership with the boards of our portfolio companies to create value through to the ultimate realisation of our investment.
We operate through a network of teams located in Europe, Asia and the US. Europe is our principal region with some 90% of the investment portfolio by value based in this market. We continue to increase our presence in new markets. During the year, teams were formed in Shanghai and Mumbai and, most recently, in New York to extend our Growth Capital business.
Consistent with our strategy of investing in third-party private equity funds to gain market access and additional opportunities to add value to our portfolio, we made investments in Israel and Russia during the year. These accompany existing investments in funds in China, eastern Europe and Japan.
The benefits of having access to permanent capital from our own balance sheet also enable us to take a more flexible and longer-term approach to the structuring of individual investments.
Buyouts
This business line invests in European mid-market buyout transactions with a value of up to €1billion and targets around 15 investments per year. These investments typically involve 3i investing with co-investment funds managed by 3i. Investments are in businesses with development potential where we can work with an incentivised management team to grow value through operational improvements and by exploiting market opportunities. These businesses are generally sold by large corporates disposing of non-core activities, private groups with succession issues or, in the case of a secondary buyout, other private equity investors.
A key to our success is our international network, which enables us to access markets as a "local" participant and to apply to each opportunity the knowledge, skills and sector experience of our much larger pan-European resource. An intimate understanding of the economic model that drives the companies that we invest in is critical, as is the value creation plan that supports each investment decision.
Competition in the European buyout market is intense and the high level of historic returns achieved has continued to attract new entrants, including some non-traditional competitors, such as hedge funds.
Despite the strong competition, we are confident that through a combination of our scale, local knowledge and sector insight, we can build on our position as the leading European mid-market buyout house.
We will also actively review the opportunities to expand our Buyout business beyond Europe, particularly as we build Group-wide experience in Asia.
Growth Capital
Our Growth Capital business targets investments of between €10 million and €150 million, across a broad range of sectors, business sizes and funding needs. We aim to invest in between 20 and 30 such transactions per year and it is our strategy to continue to grow the average size of investment.
Growth capital investments typically involve 3i acquiring substantial minority stakes in privately-owned businesses at key points of change. Growth capital can be invested to accelerate organic growth, to fund acquisitions or to acquire shares from existing shareholders to resolve a succession or other ownership issue. With such minority positions, we seek to ensure a high level of influence to create value for shareholders.
Success in growth capital is increasingly driven by deep sector knowledge and the ability to add value to companies expanding internationally, through giving them access to 3i's network. These factors, combined with 3i's traditional strength in managing relationships with regional businesses and intermediaries, give 3i significant competitive advantage.
To date, our Growth Capital business has focused on the European and Asian markets where we have strong networks and relationships and see good opportunities to invest. During the year, we extended our reach by entering the US market.
The competitive environment in the growth capital market is more attractive than in the buyout market. Additionally, not all private equity funds' mandates provide the freedom to make minority investments. Our permanent capital differentiates us from other private equity investors, enabling us to make not only minority investments, but provide more flexible longer-term funding.
A dedicated infrastructure team has also been created within this business line with the goal of building a high-quality portfolio in this asset class. Our investment strategy here is threefold: direct investment in infrastructure projects; investment in infrastructure funds; and creating portfolios of infrastructure assets to bring to the market.
Venture Capital
Our Venture Capital business is focused on early and late-stage technology investing and targets investments in the range of €2 million to €50 million. The four main sub-sectors are: healthcare, communications, software and ESAT (Electronics, Semiconductors and Advanced Technologies).
The main geographic focus continues to be Europe and the US, though we have made venture investments in Asia. As venture businesses typically compete globally, each investment opportunity is reviewed by reference to the relevant global sub-sector's competitive landscape.
We work closely with each company we invest in to create a route map to becoming a scalable, successful business. We are a selective, active investor and we sit on the boards of the majority of companies in which we invest. We work in partnership with our investee management teams to add value by utilising 3i's global network of relationships. Through these relationships, we will often introduce new partners, customers and suppliers, and because our network is international, we can help young businesses to bridge the gap to new markets.
Our Venture Capital business has a prominent position in Europe with a strong track record of investment and divestment. Competition is strong in markets such as the UK, where many US firms are active. However, we continue to be well placed here and in other European venture markets. The US market is highly competitive but our global network, sector focus and international offering position 3i well alongside local firms.