Exceeding expectations:
3i Buyouts is on course to raise €5bn for Eurofund V – well above our original target.
This summer we successfully positioned our business for the next phase in its development. We completed the Eurofund IV investment cycle and prepared to make our first investment for Eurofund V. Our funds contain third party monies which we at 3i Buyouts invest on behalf of our international, high-quality investor base. Alongside these funds, we also invest 3i’s capital. For Eurofund IV we raised €3bn in 2003 and the fund is yielding great performance for 3i and our investment partners. In the next few pages, we highlight some great Eurofund IV realisations, including Refresco and betapharm. We have already closed Eurofund V at an amount well above the original target, and expect to hit the cap of €5bn.

Fine-tuning the strategy
Eurofund V will be invested over a four year cycle. We will continue to do about 15 deals a year and will retain our focus on European mid-market companies with an enterprise value of up to €1bn. At the heart of our investment strategy will be businesses that are led by excellent management teams and have highly attractive prospects for growth. We will fine-tune our approach, typically, in two ways:

Strengthening our focus on larger mid-market companies, where deals exceed €100m. These deliver consistent and significant out-performance and create extra scope to apply value-adding, cross-border strategies.
Including central and eastern European companies in our portfolio on a selective basis, when our knowledge and networks give us a clear advantage.

A proven business model
Between 2001 and our latest financial year-end, 31 March 2006, we invested €3.1bn in 79 mid-market buyouts. We’ve already generated about that amount of cash from those investments and achieved an overall gross portfolio IRR of 41%. For the 25 investments that have been fully realised, the IRR is 55%. The buoyant markets we saw in 2005 have extended into 2006, and there are large volumes of cash and debt chasing deals. We remain vigilant and continue to focus on paying fair prices for high-quality assets, where we have clear scope to add value. At the top end of the market, huge buyout funds are increasingly focused on ever-larger deals. Our commitment to the pan-European mid-market is a distinctive and well-positioned stance.

Knowledge without boundaries
Our sector expertise is a valuable asset, which we continue to nurture and grow. As part of a wider group, 3i Buyouts makes a conscious effort to share knowledge across business lines. Early-stage investments by our Venture Capital colleagues offer great insight into emerging trends, giving us a powerful way to increase the value we add to our portfolio. Sharing knowledge across boundaries was the theme of our first CEO Forum in December. This brought together 28 CEOs who head portfolio companies for 3i Buyouts. The CEOs discussed how to drive change in corporate performance and listened to top speakers sharing the latest views on the global economy. It was a great event and we will hold another before too long.

Building bridges
The launch of this publication was driven by the desire to share insights with our closest friends in the market. To test its value, we asked one question: ‘Did you find Buyouts Preview a worthwhile read?’ I’m delighted that more than 95% of people who answered said ‘yes’. This second edition offers further insights into 3i Buyouts and features many of the issues discussed at the CEO Forum:

The value 3i Buyouts creates through active ownership.
Our specialist experience and knowledge of countries and sectors.
The bridges we are building between Europe and Asia.

I hope you will enjoy reading the articles and derive value from them. And I hope it won’t be one-way traffic. Buyouts Preview helps us share our thinking with you; I’m also keen for you to share your thinking with us.
Jonathan Russell