3i, the UK’s biggest listed private equity group, surprised the stock market this morning by announcing that CEO Philip Yea was standing down with immediate effect. The news came as it reported a predictably dismal set of quarterly results: its top 50 investments have apparently lost 21% of their value, or £864m in total, while realisation revenues and investment activity are way down on last year. With 3i’s share price now down about 75% this year (to its lowest level since flotation in 1994), it’s clear the heat was rising – but Yea’s abrupt departure still comes as a bit of a shock…
In a statement, 3i chair Baroness Hogg said Yea was ‘stepping down to assist the transition to the next generation of leadership’ and thanked him for his ‘great contribution’. He’s been at the helm since 2004, and was widely praised for his professional management style and strategic prowess, overhauling 3i’s strategy to focus on larger mid-market buyout and growth capital deals and reducing its venture capital activity. He has also been credited with bolstering 3i’s public image by positioning the firm as the ‘acceptable face’ of private equity during the devil-take-the-hindmost days of the LBO boom.
But the suddenness of the announcement and the surprise shown by some investors suggests that the move is not simply a planned handover to an upcoming new leader. Like most private equity groups, the assets in 3i’s portfolio have been shrinking in value, while access to credit for buyout deals has all but dried up. 3i typically uses less leverage to do its deals than many rivals, but it still carries some £2.1bn net debt, more than enough to make analysts fret and ensure that the share price has taken a pounding.
Yea has also faced questions for continuing a programme of returning cash to shareholders during his tenure. Of course that’s a nice thing to do when times are good, but when things get as bad as they have done recently, say the critics, firms are better advised to hang onto all the cash they can lay their hands on. So Baroness Hogg and her fellow directors may well have felt that a change at the top would be a good way of being seen to take fast and decisive action before things get any worse.
There certainly wasn’t much good news in today’s statement. 3i has taken the unusual step of valuing its biggest 50 investments, which account for 61% of its total portfolio – these have apparently fallen in value by 21%. Its investment so far this year is 53% down on last year’s equivalent figure, while realisation proceeds totalled £942m, down 36%.
Fortunately Yea’s successor, Michael Queen, is a former FD of the group so he should be able to hit the ground running. More recently he’s been heading 3i’s successful infrastructure fund, and is likely to bring a hands-on approach to the role – in marked contrast to Yea’s more arms-length style. Which might be just what 3i’s troops need now – after all, in hard times there’s nothing like seeing the boss in the thick of the action to raise staff morale. Tally ho!
In 2007, Philip Yea was the subject of the MT interview. Click here to read what he had to say about 3i's strategy at a time when life was much more straightforward...
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Philip Yea quits as 3i portfolio loses £864m
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