Private equity firm 3i is axing more than a third of its workforce and closing offices from Barcelona to Shanghai in an overhaul it hopes will help turn around its ailing performance and appease disgruntled shareholders, Reuters reported Friday. The cuts are a fresh attempt to halt a decline at one of Europe’s biggest private equity groups that started five years ago and has seen the ousting of former Chief Executive Michael Queen as well as his predecessor Philip Yea in 2009.
(Reuters) – Private equity firm 3i is axing more than a third of its workforce and closing offices from Barcelona to Shanghai in an overhaul it hopes will help turn around its ailing performance and appease disgruntled shareholders.
The cuts are a fresh attempt to halt a decline at one of Europe’s biggest private equity groups that started five years ago and has seen the ousting of former Chief Executive Michael Queen as well as his predecessor Philip Yea in 2009.
New head Simon Borrows, a former Greenhill banker who took over last month, will cut over 160 jobs as he seeks to reduce annual operating costs by 45 million pounds ($62 million) within two years.
“This appears to be a far reaching review and in some areas is more radical than we were expecting,” said Oriel Securities analyst Iain Scouller in a research note.
“Whilst the headcount reduction of 160 employees (37 percent of headcount) is brutal, it will bring investment capacity down to a more realistic level for today’s difficult environment.”
Many private equity firms have been hit hard by volatile financial markets and a plunge in dealmaking since the financial market crisis erupted in 2007-8.
3i’s troubles have been more acute than most because it invested heavily in companies during the peak of the buy-out market, in mature regions or declining western European markets such as Britain and Spain.
3i focuses on mid-sized companies, with investments including Giraffe restaurants and Agent Provocateur lingerie. More recently it has expanded into infrastructure and debt management.
Shareholders, including Laxey Partners, have voiced their dissatisfaction with a poor share price performance and have called for more money to be funnelled back to them through sales of investments.
The job cuts are to start immediately, CEO Borrows said in a call with reporters, with the majority of affected staff leaving by the end of September and the programme completed by the end of March.
Under the plans, 3i will close its offices in Barcelona, Birmingham, Copenhagen, Hong Kong, Milan and Shanghai and make significant cuts at another six offices, including New York and Mumbai, as it retreats to its northern European roots.
3i’s share price has lagged far behind the valuation it places on its assets – a large part being the equity in the companies it owns – triggering speculation over the last year it could attract a bidder, or a management buyout offer.
The shares were up 2.5 percent to 196 pence by 0910 GMT, outperforming the broader London stock market, but still trailing its asset value by some 30 percent.
The overhaul of 3i’s operations will see it suspend new investments in southern Europe and Asia. It will retain a presence in the United States and a nascent business in Brazil.
“It’s not just about cost reduction … a leaner business will remove bureaucracy and enable faster and more consistent decision making,” said Borrows. (By Simon Meads)