Private equity firm 3i is axing more than a third of its staff and closing offices from Barcelona to Shanghai, retreating to its northern European roots in a bid to revive a business hit by a spate of poor deals and appease disgruntled shareholders.
The cuts are a fresh attempt to halt a decline at one of Europe's biggest private equity groups that started five years ago and has seen the ousting of former Chief Executive Michael Queen as well as his predecessor Philip Yea in 2009.
Many private equity firms have been hit by volatile markets and a drop in deals since the financial crisis of 2007-8.
3i's troubles have been more acute than most because it paid high prices for companies during the peak of the buy-out market, in mature regions or declining western European markets such as Britain and Spain.
New chief executive Simon Borrows, a former Greenhill banker who took over last month, said he would cut over 160 jobs as he seeks to reduce annual operating costs by 45 million pounds ($62 million) within two years.
He will halt new investments in crisis-hit southern Europe, and also in faster-growing Asian markets, arguing stiff competition there means the cost of the expansion is not worthwhile.
"This appears to be a far reaching review and in some areas is more radical than we were expecting," said Oriel Securities analyst Iain Scouller in a research note.
"Whilst the headcount reduction of 160 employees (37 percent of headcount) is brutal, it will bring investment capacity down to a more realistic level for today's difficult environment."
The slimmed down 3i will have echoes of the group Borrows helped list in 1994, while working for Baring Brothers, before it expanded in the late 1990s and 2000s into India, China, South Asia and the United States.
The group's share price has lagged far behind the valuation it places on its assets - a large part being the equity in the companies it owns - triggering speculation over the last year it could attract a bidder, or a management buyout offer.
The shares were up 3.5 percent to 198 pence by 1240 GMT, outperforming the broader London stock market, but still trailing its asset value by some 30 percent.
INTERNATIONAL RETREAT
3i's roots go back to 1945 and the foundation of the Industrial and Commercial Financial Corporation to help the reconstruction of British industry after the second world war.
These days the group focuses on mid-sized companies, with investments including Giraffe restaurants and Agent Provocateur lingerie. More recently it has expanded into infrastructure and debt management.
However, shareholders, including Laxey Partners, have voiced their dissatisfaction with a poor share price performance and have called for more money to be funnelled back to them through sales of investments.
The weak share price mirrors the underperformance of 3i's flagship fund, a 5 billion euro pool of capital raised for buyouts in 2006 which is valued at 80 percent of the equity invested and lags many of its peers.
3i's decision to suspend new investments in Asia comes at a time when many large private equity groups are pushing into India and, in particular, China in search of fast-growing companies.
"[China has] become a pretty unattractive market in competitive terms, so we are really taking time out and focusing on our portfolio," Borrows said.
Although its companies in China have performed well, the group has not made a new investment in the last four years. Its experience in India has been mixed, with some good and poor deals, Borrows said.
While also halting new investments in southern Europe, 3i will retain a presence in the United States and a nascent business in Brazil.
"It's not just about cost reduction ... a leaner business will remove bureaucracy and enable faster and more consistent decision making," said Borrows.
The job cuts are to start immediately, he told reporters, with the majority of affected staff leaving by the end of September and the programme completed by the end of March.
3i will close its offices in Barcelona, Birmingham, Copenhagen, Hong Kong, Milan and Shanghai and make significant cuts at another six offices, including New York and Mumbai.
This article is copyrighted by Reuters
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