Lost Spark: Minority Shareholders Oppose MBO

Real Deals report today that Spark Ventures are in need of a new light. The company reported a £3.9m annual loss, and two weeks ago froze all new investments. A rescue plan involves a management buy out by Thomas Teichman, Andrew Carruthers, Jay Patel and Andrew Betton. However minority shareholders are not please.

However, Vine Street Capital, which holds 8.2 per cent of Spark, is expected to argue against such a move at the firm’s general meeting on Friday.

On Monday, the company wrote to other shareholders suggesting the plan undervalues Spark and would only “give a reward for failure to an executive management team who have presided over consistently loss-making investment activity since the company’s listing in 1999”.

Instead, it wants the process opened to outside bidders.

Isango! is an interesting company. Not sure about Cluster7.

The firm’s recently disclosed full-year earnings have revealed a mixed performance. While IMImobile and Kobalt, which together make up more than half of its portfolio, grew their revenue, the firm was forced to write down £900,000 against interior design site MyDeco because “retail markets have continued to suffer”.

Datanomic – Another 3i Ventures Exit

DN Capital and Silicon Valley Bank have acquired all of 3i’s shares in Datanomic- a data quality management software provider. The Real Deals article is here.

Datanomic’s exclusion from the wider 3i venture portfolio sale will be a blow to the potential bidders, as the company was regarded as one of the portfolio’s stars.

Review of 3i, Real Deals

The top story in this week’s Real Deals.

Since taking over in February, Queen has embarked on an aggressive disposal strategy to raise cash in order to reduce debt to £1bn. In March the firm raised £60m from selling part of its remaining stake in 3i Infrastructure, and a week later it bought back the 55 per cent it did not own of 3i QPE, which has £240m of cash. The deal generated £110m of cash for 3i Group. In addition, the group is selling the final portion of its legacy venture portfolio – initially mooted at around £250m, but bidding is now nearer the £100m mark – as well as its tail of UK SME stakes.

Most contentiously, Queen boldly pursued an audacious rights issue to the chagrin of some investors. While the opposition to the issue was probably overdone in the media, some quarters did push for a portfolio disposal programme over dilution. But like most new 3i CEOs, Queen followed the first rule of success – to follow failure – giving him the moral authority to get the issue away. About £400m will be used to pay down debt and the remainder will go towards snapping up recession-time bargains. The debt includes a convertible bond due in 2011 that may be repaid early and two revolving credit facilities drawn at £350m, which would be renewed on less attractive terms without de-gearing at a group level.

3i Ventures Auction Suggests 60% Discount to Book Value

This WSJ blog suggests that 3i have received bids of about £100m for 30-40 positions in its ventures portfolio.  This represents a 60% discount to book value, estimated at £250m by one of the bidders. 3i were hoping for a 50% higher bid.

Private equity firm 3i Group has been dealt a blow after the sale of its venture capital portfolio attracted lower-than-expected bids. Ten bids for the portfolio of 30 to 40 stakes in venture-backed companies were tabled at about GBP100 million ($160 million), according to six people involved in the bidding…

The book value of the assets 3i is selling was estimated by one of the bidders to be about GBP250 million, although several bidders warned that the difficult market conditions meant the portfolio was hard to value. Earlier in the process, the value had been expected to be about 50% higher.
…

Bid groups in the running include a consortium of secondaries players Coller Capital and HarbourVest Partners with venture capital firm DFJ Esprit as a strategic partner. Another grouping is venture capital firm Amadeus Capital Partners, bidding alongside Ethean Capital.

Google Ventures launched 31/03/2009

3i Fourth-quarter Trading Update

Here is an FT article on 3i’s Q4 trading update.

Mr Queen’s focus has been on addressing investor worries that its net debt of £2.1bn is dangerously high. In the 11 months to February, the group raised £1.1bn from disposals.

He said the group, which this month fell out of the FTSE 100 index, would take a year to complete the sales of its mothballed £655m venture capital portfolio and a £228m legacy portfolio of minority stakes in small- and medium-sized companies.

…

3i shares, which are down two-thirds in a year, fell 4.8 per cent to 252¾p.

With 3i’s focus shifting to cash-conservation, investment activity has slowed to a trickle, as it put only £57m into new deals in the first two months of 2009. It invested £898m in the 11 months to February and £2.2bn in the year-ago period.

And an article from ThomsponReuters.

3i said it realised 181 million pounds ($264 million) from asset sales in January and February.

The disposals included the sale of a 9.5 percent stake in sister firm 3i Infrastructure Plc, taking total realisations for the 11 months to end-February 1.1 billion. 3i’s financial year runs to end-March.

‘We are turning the heat up on the speed of that realisation,’ Queen told reporters, referring to its small minority investments (SMI) and venture portfolios which were valued at a total 883 million pounds at end-September.

The group expects to fully exit the SMI portfolio over the next 12 months and sell most, if not all, of the venture portfolio over the same time frame.

3i Venture Portfolio

From Real Deals

3i is understood to have put its European venture capital portfolio up for sale in a bid to cut its £1.8bn (€2bn) debt mountain.

Though the firm refused to comment, it is believed to have appointed Campbell Lutyens to seek potential buyers for the portfolio, according to the Sunday Times.

3i’s venture arm has an estimated value of up to £400m.

People moves

Mike Turner has left 3i, see the Real Deals People Moves section