This month, 80 current and ex-employees of 3i Group will share in the profits of the private equity company’s investment on discount retailer Action.
3i announced the payment in its annual results released yesterday. The FTSE 100 firm said it “crystallised a part of the carried interest liabilities” relating to the investment in Dutch discounter.
Carry interest is a share of investment profits that buyout house staff receive. This structure can be very lucrative for investors if they make a successful investment. 3i’s bet on Action was a great example.
Private equity and venture capital firm 3i invested EUR130m in Action for the first time in 2011. According to the latest financial results, it now has a 52,9% stake in Action, valued at £11.2billion on March 31. This represents the majority of 3i’s £18.4billion investment portfolio. 3i’s Action investment is now worth £11.2 billion, up from £7.2billion in March of last year when it held a 52.7% stake.
Action, founded in 1993, operates in 11 European nations, with 730 stores in France being its biggest market.
3i announced yesterday that the retailer accounted for approximately £900 million out of the £1.3billion in so-called balance sheet carried interest. This is the amount that would have been paid out by the company if it had paid all the carry-overs across all 3i plans at the end its financial year, on March 31.
The deal that 3i made in March to increase its stake in the discounter by a small amount triggered the payment of £200 million due this month. The money will be given to those who took part in 3i’s carry scheme 2010-12, and of which less than 20 remain 3i employees.
Simon Borrows said that it was “probably” the largest payment to date. He is not a recipient of the money.
3i stated that Action’s “strong performance” was the primary driver of 3i’s total returns for the year.
The total return of the company for the year ended March was £4.6 billion compared to £4 billion the previous year. Its net asset value per shares climbed from £13.21 up to £17.45. This exceeded analyst expectations.
The 3i share price rose by 52 1/2p or 3 percent to £17.99.
The origins of the group can be traced back to a 1945 fund set up by the Bank of England, commercial lenders and other financial institutions to support small and medium-sized businesses following the Second World War. Investors in Industry was the name given to it in 1983.
Modern Group is a leader in private equity investing and its stock market value exceeds £17 billion.