Case studies November 2006
Buyouts Chorion New investment - UK - Media In May 2006, 3i and funds completed the acquisition of Chorion, a UK-based intellectual property owning, brand creation and management business, in a 198 million public to private transaction. Chorion, previously listed on AIM, generates revenue by charging royalties on toy merchandising, book publishing and TV. It operates on a global basis, with a portfolio which includes well recognised classic children s brands such as Noddy, Famous Five, and the Mr Men, as well as the works of crime writers such as Agatha Christie (Miss Marple and Poirot) and Georges Simenon (Maigret). 3i worked exclusively with Chorion s Chairman Waheed Alli and the incumbent management team, responsible for almost trebling the value of the business since 2002, for nearly a year before the deal completed. This strong relationship with Waheed Alli coupled with 3i s in-depth media sector knowledge, through deals such as Sparrowhawk Media and Pinewood Shepperton, secured the investment opportunity. The investment in Chorion represented an opportunity to acquire a portfolio of high-quality brands which have a proven track record of publishing success and which are ripe for further development. Chorion has an excellent platform from which to expand into new geographic markets, and a proven management team which is well placed to capitalise on this opportunity with the strategic support and financial backing of 3i.
Buyouts Azzurri Communications Realisation - UK - Technology During the six years that 3i was invested Azzurri made 15 strategic acquisitions and, combined with strong organic growth, a business with revenues of 115 million (for the year to June 2006) was built as a result. Headquartered in Newbury, Azzurri now has sales and support operations in eight locations across the UK. In June 2006, 3i and funds sold a combined 75% stake in Azzurri Communications, the leading UK converged voice and data communications company, through a secondary buyout which valued the company at 182.5 million. 3i and funds proceeds from the sale of 115 million represented an IRR of 38% and a money multiple of 4.9 times initial investment. In addition to significant strategic support at inception, 3i contributed to Azzurri s success throughout. The introduction of experienced private equity Chairman Alan Cornish to the management team in 2002 was key to the successful delivery of the complex buy and build strategy. Previously he was Deputy Chairman of another successful 3i investment, the market research company MORI, has been Chairman of 3i-backed Local Press and was NXD of TeleCity plc. Azzurri was also able to gain substantial contracts from several 3i portfolio companies, including Target Express, MORI and NCP through 3i s introduction. Finally 3i ran a highly-competitive exit process, running a proposed AIM listing alongside sale discussions with trade buyers and private equity houses, to achieve an attractive exit price. 3i and funds invested 25 million in Azzurri Communications over 2 years from June 2000 to back Azzurri s founder Martin St Quinton. 3i had already built a strong relationship with Martin St Quinton through its People Programmes and the plan was to create a buy and build vehicle for the telecommunications reseller market.
Buyouts Refresco Realisation - Netherlands - Consumer In September 2003, 3i led the 246 million buyout of Refresco, one of Europe's leading suppliers of private label soft drinks and fruit juice to food retailers. The market leader in Holland and Germany, Refresco also had a major presence in France and Spain. 3i was able to beat off stiff competition to win the deal because of its strong European food and drink sector expertise and the breadth of its network. At the time of the investment by 3i and funds, European consumption of private label fruit juices and drinks was growing by between 4% and 6% per annum and the leading players were expanding through acquisition. 3i was attracted by the quality of Refresco's management team and their aggressive buy and build strategy. With the help of 3i's team in Finland, Refresco acquired Finish private-label market leader VIP Juice in 2005. 3i also supported the acquisition of Interfruit, a leading Spanish national juice business, leveraging the knowledge and network of 3i in Spain. Alan Peterson, a former CEO of Meyer International PLC, was introduced to the board as Chairman by 3i. He played an active role in driving the integration of the previously autonomously run group of companies into one single European business. Refresco increased its EBITDA by 42%, leveraged its gross margins on products from 8% to 12% and enjoyed organic growth of 10% per annum during 3i and funds ownership. In April 2006, 3i and funds sold their stake in Refresco to an Icelandic consortium consisting of Kaupthing Bank, FL Group and Vifilfell Bottling Group for 478 million. The sale generated a 116 million profit, a 50% IRR and a 3 times money multiple for 3i and funds over a two and a half year period.
Growth Capital CH4 Energy Realisation - UK Oil and gas 3i originally invested 1.2 million in CH4 Energy providing start up capital in September 2002 and has been instrumental in driving its growth into a successful exploration and production business. Backing a strong management team, 3i was able to add significant strategic value to the business through its sector expertise. 3i funded 36% of all European oil and gas private equity deals from 2003 to 2005 and manages an investment portfolio of 14 companies in the exploration and production and service sectors including Vetco International, Energy Development Partners, RBG and Salamander Energy. 3i invested a further 1.9 million in CH4 in July 2003 to fund a 25% interest in a gas pipeline in the Southern North Sea and 6 million in May 2004 to support the 52 million acquisition of ENI s 37% interest in Markham, a producing gas field in the Southern North Sea. By 2006 CH4 was of a scale which made it attractive to trade buyers. It had built a diverse portfolio of infrastructure, exploration, development and production assets, focused on the UK and Dutch sectors of the North Sea. It had also successfully integrated five acquisitions and, from a standing start in January 2006, its Chiswick field was due to produce its first gas in early 2007. Working closely with the management team, 3i ran a competitive auction process which resulted in CH4 being acquired by Venture Production plc for 224 million in August 2006. The deal, a mixture of cash and paper, provided 3i with an IRR of 105% and a 7.3 times money multiple. Venture Production, one of the UK continental shelf's largest independent operators, was itself initially established in 1997 by 3i and Larry Kinch and was floated on the London Stock Exchange in March 2002, returning a 4.7 times money multiple and a 46% IRR to 3i. CH4 is an excellent strategic fit for Venture Production both in terms of geography and people.
Growth Capital Renta Corporación Realisation - Spain Support services 3i was attracted by the opportunity to invest in a company with a unique business model and an outstanding management team in a growing market with high barriers to entry. In the 18 months that 3i was an investor, Renta s pre-tax profits rose from 26 million to 49 million and Renta also completed its first transactions in the UK and Germany. In early 2006, 3i and the management team judged the market conditions of both real estate and the stock markets to be optimal for the company to prepare to float and Renta achieved a successful IPO on the Madrid Stock Exchange in April 2006. The IPO delivered proceeds of 59 million to 3i, a money multiple of 3 times and an IRR of over 130%. 3i invested 20 million in Renta Corporación for a 9.9% equity holding in December 2004. The company is the leading specialist operator in the transformation and repositioning of existing buildings in city centres in Spain. Originally founded in 1990 by the current Chairman as a real estate broker, Renta identifies buildings in city centres with untapped development potential, purchases and refurbishes them, and then sells them in under a year. 3i was introduced to the business by Atlas Capital, when the management team was seeking a private equity partner that could provide strategic advice and substantial experience in the IPO process, in addition to capital to fund Renta s ambitious expansion plans.
Growth Capital Vijai Electricals New investment - India Power equipment In August 2006, 3i invested $25.8 million in Hyderabad-based Vijai Electricals, a leader in the power transmission and distribution equipment industry. Established in 1973, Vijai is the largest player in distribution transformers in India with a market share between 27% and 30% and a clear focus on quality. The company is currently expanding into extra high voltage power transformers and switchgear through technology tie-ups with majors in Japan and Russia, with the aim of becoming a full service transmission and distribution player. Vijai is also substantially developing its project business. 3i built a relationship with D J Ramesh, founder and Chairman and CEO of Vijai, over the three years prior to investment. 3i has been offered a seat on the board and will utilise its extensive network and contacts to add strategic value, particularly in international expansion, acquisitions and technology tie-ups. Vijai has provided 3i with the opportunity to back a market leader with an ambitious management team, well positioned to capitalise on the significant opportunities presented in this fast growing sector. The Indian power generation, transmission and distribution sector has seen significant growth in the past few years driven by government spending to sustain economic growth, reforms in central policies, a focus on rural electrification and an increase in power consumption driven by economic growth.
Venture Capital Icera New investment - UK Electronics, semiconductors and advanced technologies Prior to investment, 3i had built a relationship with Icera s founders, led by CEO Stan Boland, over a four year period. Boland is one of the most successful serial entrepreneurs in the semiconductor industry. 3i s strong track record and in-depth knowledge of the wireless semiconductor market, gained through backing companies such as CSR, TTPCom, UbiNetics and DiBcom, secured it the investment opportunity. Icera clearly exhibits the key criteria that 3i seeks in venture investing: a disruptive technology, excellent management and a significant market opportunity. In July 2006, 3i invested $20 million in Icera Inc., the cellular wireless semiconductor company. This later-stage investment involved joining an existing syndicate who have collectively invested over $80 million in Icera. Icera has developed the Livanto chip, a disruptive new architecture for cellular phones and cellular datacards. This breaks through the cycle of handset availability lagging infrastructure for new wireless standards. As well as being amongst the first to market with a 3.6Mbps high speed data solution, Icera aims to drive the availability of faster and more complex standards through software upgrades on the same Livanto device but without the time and cost of developing, verifying and manufacturing new silicon.
Venture Capital SyChip Realisation - US Electronics, semiconductors and advanced technologies SyChip is today in the business of wireless LAN subsystems for personal digital assistants and has been working with large consumer electronics companies, global handheld OEMs and Asian-based ODMs. In April 2006, 3i portfolio company SyChip was acquired for $140 million by Kyotobased Murata Manufacturing Company, one of the world s largest electronic subsystems companies. 3i achieved $23.6 million in proceeds on a $10.6 million investment. SyChip was originally a spin out from Bell- Labs/Lucent in New Jersey, US. In 2001, 3i led a $7 million series C investment round bringing in new investors, with the aim of building a global business. 3i took a seat on the board of SyChip and shortly after investment the business was re-located to Dallas, Texas with a small science team remaining in New Jersey. During the course of the investment, a new CEO, George Barber, a veteran manager from Texas Instruments, was recruited. 3i supported the company in further funding rounds in 2003 and 2004. SyChip's radio frequency designs are easy to simulate and predictable, thus reducing timeto-market, increasing performance and improving reliability for its customers. It has also has consistently beaten the competition in terms of footprint and power-consumption, crucial parameters in the mobile handset space. Lately, it has launched a voice-over-ip processing engine which is used in Wi-Fi based mobile handsets. During the time that 3i was involved, SyChip grew to 71 people located in Dallas, US and in Shanghai, China the latter is an engineering and Asia development centre which was set up to serve Asian customers. The company s first product launch was in 2001 and the company has achieved significant revenue growth year over year. Sychip is also the recipient of multiple awards, such as Internet Telephony s 2005 product of the year, Deloitte s 2005 Fast 500, the TiEcon 2005 Emerging Star Award and finalist for 2005 Red Herring 100.