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The keynote lunch at the Innovative Deal Financing Conference featured The Deal's David Carey interviewing Bruce Carnegie-Brown, a managing partner at 3i Group plc's quoted private equity unit. Beginning with a look at the credit market/LBO situation in Europe, Carnegie-Brown commented that the environment is fairly similar to the U.S.
In the European market right now, "the rule of thumbs has been that if you want to do a deal above €2 billion in the U.K., don't ... wait 'til next year." He does see things shaking out though as "the banks have begun to mark some things down," signaling a willingness to absorb the blow and move on. Turning to 3i's new unit, Carnegie-Brown said it is trying to fill a space between activist shareholders and buyout deals. It's aiming to bring the same alignment of interest between management and investors that comes after an LBO, but with the company remaining public. The group takes small or large stakes in what it deems undervalued public companies. 3i recently closed an €400 million ($800 million) investment fund to do these types of deals with the goal of taking stakes ranging from €100 million to €1 billion in public companies through the markets, but not through preferred shares. By keeping the stock public, 3i doesn't have to pay the premium that they would in an LBO. "If we're doing a buyout, we've paid too much," he said. If the deal lends itself to a buyout, then they step back. Carnegie-Brown also mentioned that alignment with management is vital to the investing strategy; they're not interested in hostile takeovers or turnarounds. Since the 3i fund itself is publicly traded, the general partners don't have as much pressure to exit portfolio companies, but they expect to make their exits in similar ways to buyout firms. What 3i bring to the table is helping management look more at the long term, and make tougher decisions earlier, with a view toward doubling the value of their portfolio companies within two to four years. Thus far, the fund has made only one investment, a toy company listed on the AIM. —George White
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