3i took an unfair hit today over the value of a discount shop chain phenomenon called Action.
If you’ve not heard of it, ask anyone in retail; they will drop to their knees in worship.
When 3i invested eight years ago, it had 250 shops in Holland and was worth €600 million. Now, it has 1500 stores across Europe, has returned €2 billion to investors and is worth €10 billion.
It won’t work here because rents are too high, but 3i reckons there’s scope for 6000 stores and is staying on for the ride. The fund Action sits in is expiring, so 3i is transferring it to a new one and upping its stake to 50%.
3i shares fell because some reckoned Action was worth more than the transfer valued it at. But such forecasts were based on what Action might fetch in a takeover. This is the opposite of a get-rich-quick sale; it’s a get-even-richer hold.
3i’s patience — not always a feature of private equity — will be richly rewarded.