3i says asset inflation making investments 'tricky'

The UK's biggest listed private-equity group has warned that over-inflated asset prices are creating a “tricky” investment atmosphere, saying it plans to invest in smaller businesses to avoid overpaying.

3i, which owns the clothing retailers Hobbs and Agent Provocateur, is planning a £500m investment in medium-sized businesses in the coming years after selling £669m worth of businesses in the year to the end of March.

However, chief executive Simon Borrows said the group would have to be “patient and disciplined” in making investments amid a swell of funds pushing up selling prices.

“The current environment is a tricky one for new investments. There is an excess of capital looking for investment opportunities and this has driven up sellers’ price expectations,” he said.

Mr Borrows said that 3i had benefited from higher asset prices, with its total return on investments up from £373m to £478m. One of its strongest performers was the Benelux discount retailer Action, which was revalued from £280m a year ago to £580m.

Last year, its investments included Basic-Fit, the European discount fitness operator, and Scandlines, the ferry operator. Its major acquisitions were made via private negotiations rather than with an auction process, which the group claims have become expensive.

3i has made a series of job cuts in recent years, scaling back its international operations as it attempts to improve its finances.

The company, which traces its roots to the creation of the Industrial and Commercial Financial Corporation, an effort to boost British industry after the Second World War, has more than halved net debt from £335m to £160m.

Shares rose 22 to 400.2p. 3i said the net asset value per share had risen from 311p last year to 348p.