3i Beats UK Fund Target, Closes Its Euro Effort

3i’s two latest forays into the external fund-raising market have reached successful conclusions. The 3i Eurofund II closed in mid-May at its maximum level of ecu 650 million, while the UK Mid-Market Programme has exceeded its original GBP1 billion target, bringing in a total of GBP1.3 billion (ecu 1.9 billion) for UK deals in the GBP15 million to GBP100 million range.

3i committed half the capital of the second Eurofund, alongside 11 external LPs. Of these limiteds, six are European, one Asian and four North American; three are first-time investors with 3i. Since its first close last summer, 3i Eurofund II has invested some ecu 140 million in around 50 deals in France, Germany, Italy and Spain. The fund incorporates an FCPR for French investments alongside a conventional Anglo-Saxon LP structure.

The UK Mid-Market Programme, the successor to 3i’s second LMBO Fund, UK Investment Partners II, incorporates three components. Axa Sun Life Asset Management (AXA SLAM), via Parallel Ventures, committed GBP250 million to the programme. The original intention was that the AXA SLAM capital would be invested alongside a parallel GBP250 million LP raised from international third-party investors and GBP500 million of 3i’s own monies. Paul Waller, 3i’s director of fund management and a master of the art of understatement, explained that in the end the external LPs came in “slightly over target” at GBP380 million.

Together with the AXA SLAM commitment, the external component of the fund therefore totalled GBP630 million. 3i has slightly more than matched this figure to take the programme to GBP1.3 billion.

As 3i is precluded from holding majority stakes, the group has previously only matched external funds 50:50. In this instance, it has been able to increase its commitment slightly by establishing a variable investment ratio whereby it takes between 50% and 60% of the equity holding acquired by the fund, depending on the nature of the deal. For transactions where the fund acquires 75% or more, 3i will split the investment 50:50 with the external investors. In cases where a smaller institutional holding is acquired, 3i will take 60% of the stake. To date, some 10% of the UK Mid-Market Programme has been invested.

Thirteen investors participated in the LP component of the programme, seven of them from Europe, one from Asia and five from North America. Eight were repeat investors with 3i.

In all, 3i now has more than GBP1.3 billion of external funds under management and has increased its client base to 27 institutions.