Intouch3i International Magazine Autumn/Winter 2008-09

BUSINESS LEADERS NETWORKApplying the right chemistryto form a winning combination

ACTIVE PARTNERSHIPRealising companies’full potential

A CLEAR VIEW FOR EUROPE3i’s Jonathan Russell becomesEVCA Chairman

SOUTHEAST ASIAPartnering with the region’sbest companies

3i is a world leader in private equity.We focus on Buyouts, Growth Capital,Infrastructure and Quoted Private Equityand invest across Europe, North Americaand Asia.Intouch leverages the knowledge of 3iand its relationships to provide insight intoimportant private equity and industrythemes and trends.

Contents

02Making the case for private equityJonathan Russell becomes EVCA Chairman at a time ofreal challenge to the industry.

04Harnessing the power of partnershipOffering systematic access to leading management practiceand expertise.

08Diagnosing a route to better healthcareLabco is pursuing an acquisitive growth path in Europe'sfragmented medical diagnostics market.

10Hooked on gasThe need for new, efficient and clean power plants isdriving Europe’s ‘dash for gas’.

12Opening the door to Southeast AsiaPartnering with the best local companies gives access toexciting expansion prospects.

14A winning combinationBusiness Leaders Network makes a vital contribution toportfolio companies’ success.

18Taking advantage of testing timesAd Verkuyten, a 3i business leader, develops a testing,inspection and certification sector.

20International newsA round up of 3i appointments, awards, investments andrealisations.

22Boosting Chinese energyDon Bai, a 3i business leader, sees opportunities emergingas China seeks fresh energy supplies.

At 3i, we have been building our capabilities to transformbusinesses over many years. The articles in this edition ofIntouch provide some insights into how we partner the boardswe back, and how we are refining the ways we help them.

As Warren Buffet once said: “In a bull market, one must avoidthe error of the preening duck that quacks boastfully after atorrential rainstorm, thinking that its paddling skills havecaused it to rise in the world. A right-thinking duck wouldinstead compare its position after the downpour to that of theother ducks on the pond.”

It is clearly easier for us all to be successful in thrivingeconomic conditions, but it takes high quality managementand the right strategy to succeed as growth slows.

Our job at 3i is to create value for our shareholders and theinvestors in the funds that we manage whatever the economicconditions. To do this depends on backing the right peopleand working with them actively to create value.

Philip YeaChief Executive, 3i Group

Tough markets but private equity

01

Executive summary

There is no doubt that the current economicbackdrop is challenging in many regions andmarkets around the world. As an investor, creating

value in such an environment depends not simply uponmaking the right investment choices but also uponactively helping the management teams we back toturn their value creation plans into a reality.

thriveson change

making the

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Q: How do you view your task asChairman of the European PrivateEquity & Venture Capital Association(EVCA) at a time when the privateequity industry faces the prospectof new legislation?A: This is a very interesting time to beChairman because EVCA has a role toplay like never before. People think theeconomic crisis has been caused by thefinancial services industry, which meansthey are searching for answers andsaying: “Who do we need to look at?”

On top of that, a segment of theEuropean Union is very anti-privateequity. A German politician famouslyreferred to us as locusts, and the2006 acquisition of TDC, the Danishtelecommunications company, waswidely criticised – ultimately leadingto legislation in that country.

On the back of this, it is no surprise thatEurope-wide private equity regulationhas been proposed by a Dane and aGerman. So, for the first time, the Brusselsmachine of the European Parliamentand Commission is presenting a focused,determined and real legislative threat toprivate equity.

I am not saying that legislation wouldbe an absolute disaster. But legislationwithout full consideration of theconsequences is potentially dangerousto the economic and social developmentof Europe.

Therefore EVCA has a vital role to playto ensure that whatever the outcome is,it satisfies the public institutions withoutleaving the industry hamstrung.

Q: Why is Europe movingtoward legislation?A: Some people are deeply worriedabout private equity, but most of theirconcerns are driven by a lack ofinformation. The industry has beenguilty of not explaining what it is andhow it does business. The other driveris the trade union movement which isworried about the impact of privateequity on employment.

Q: What does private equitycontribute to the European economy?A: Private equity is a highly effective andproven ownership structure for manybusinesses. It is a force for efficiency andgrowth across Europe.

No one disputes the contributions ofventure capital and growth capital assources of funding and innovation. Really,the questions are about buyouts and,particularly, big buyouts. If you studythe evidence, there is no doubt thatbusinesses grow faster, export more andare more fit-for-purpose under privateequity than other types of ownership.

The big issue is around employment.If you look at private equity ownership,employment tends to drop at first andthen grow to exceed original

casefor

JONATHAN RUSSELLJonathan Russell became Chairmanof the EVCA in June 2008 andwill hold his post for one year.He heads a body based in Brusselsthat represents the interests of1,200 private equity and venturecapital firms across 53 countries.Jonathan sits on 3i’s ManagementCommittee as Global Head of Buyouts.

03

EVCA

privateJonathan Russell assumes Chairmanship of EVCA in its25th year and at a time of real challenge to the industry,with pressure from Brussels for far-reaching changes toregulation, interest deductibility and capital requirements.

equityemployment levels after the first oneor two years. There are many reportsthat show this. The issue is that thereis no one definitive study.

Q: What exactly is being proposedand what is the timetable?A: Most of the actions being discussedare suggested in the Rasmussen andLehne reports, which are ‘thought’ papersat this stage. They include transparencyrecommendations, restrictions on the tax-deductibility of interest, leverage limitsand capital adequacy requirements forunderlying investment vehicles. All ofthese counterproductive regulations havebeen tabled for discussion in Brussels.

I do not think that this will blow overeasily because the European Parliament,an elected body, is demanding regulationon the back of these two reports. TheEuropean Commission, therefore, has tocreate proposals that satisfy Parliamenton the one hand, but are enforceable anddo not create pockets where competitionwill suffer on the other.

By the end of next summer, theCommission will have decided what willbe included in its next legislation agendaand, in 2010, whatever it suggests maypass into law.

Q: What actions will EVCA needto take?A: The first thing we really need tounderstand is what the EuropeanCommission wants to do. Then, we haveto get the private equity industry – whichis very diverse by geography, type,size and style – to agree upon a single,clear view.

EVCA is a representative body taskedwith representing its members atEuropean level. To succeed in ourtask, our industry must speak withone voice in Brussels through EVCA.We need definitive data that everyonerecognises as accurate and reliable.We have to start from a bedrock of solidinformation in order to present our case.The industry has to co-operate to gatherthis information. If the industry does notwant to face up to this issue, we can’t doanything about it. But I think that doingnothing is not an option.

Doing nothing is not an option. By theend of next summer the Commissionwill have decided what goes on its nextlegislation agenda. In 2010 whatever itsuggests may pass into law.

Q: When your tenure comes toan end next June, what would youhope to have achieved?A: I would like to think that by thenwe would be well on the way to creatingthat definitive information, that we wouldhave entered into a dialogue with theCommission and would be discussingthe real issues. We need to satisfy theconcerns of the public and policy bodies,without diluting what the industry doesto the point that it harms the industrial,corporate and economic structureof Europe.

The UK’s Walker Report is a wonderfulexample of government and industryworking together to produce a clear setof self-regulatory guidelines that dealwith all the information flows. As a resultof this, the industry in the UK completelybought into a balanced set of transparencyguidelines and the government did nothave to waste time with legislation.

3i has always worked closely withthe companies it backs to helpthem achieve growth objectives.But now, with the developmentof Active Partnership, it can offermore support to improveperformance through systematicaccess to leading managementpractice and expertise.

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partnershipof

Thirty-five CEOs and other seniorexecutives from 3i-backed companies,ranging from hedge fund administrators

to ladies’ lingerie retailers, met for two daysin Geneva’s Le Richemond Hotel at theend of October 2008.

harnessing thepower

As is often the case with private equity-backed companies, all were introducingconsiderable change in their businesses,seeking better ways to deliver growth,and the gathering in Geneva providedan opportunity to learn from each other.

The 3i hosted event was opened byMichael Queen, 3i's Managing Partnerfor Infrastructure. Queen talked abouthow he has led and influenced changeprogrammes in both his career at 3i andin other organisations such as the NHS.He also drew upon his financial sectorexperience and led discussion on theimpact of the current financial crisis onthe wider economy. Other CEOs sharedtheir similar experiences and goals –relating key lessons learned."We have an unrivalled network ofpeople across 3i and our portfolio of

companies," says Queen. "There is realvalue in harnessing the power of thatnetwork by making connections betweenour CEOs. The 3i Change Leaders Forumis an excellent example of this, whereparticipants are getting together to sharetheir experiences of leading anddelivering change, discussing what hasworked and, importantly, what hasn’t."

The forum is one of the first high-profilesigns of the development of ActivePartnership. The initiative, which ishelping portfolio companies to implementthe changes needed to realise their fullpotential, includes strategic, commercialand operational elements. And, of course,organisational change, as discussed atthe forum, is always critical to ensuringvalue creation.

There is real value in harnessingthe power of 3i’s network bymaking connections betweenour CEOs. The 3i Change LeadersForum is an excellent exampleof this, where participants aregetting together to share theirexperiences of leading anddelivering change, discussingwhat has worked and,importantly, what hasn’t.Michael QueenManaging Partner, 3i Infrastructure

05

Active Partnership

Generating sustainable valueThe initiative builds on the ways inwhich, for many years, 3i has worked inpartnership with its portfolio companies,combining its strategic expertise inspecific sectors with on-the-groundinternational knowledge. In real terms,this has translated into assisting withstrategy planning, recruitment of keynon-executive and executive staff, M&Aadvice and setting up overseas

Civica’s Simon Downing and 3i’s Liz Sands

operations. What’s new is that 3i is nowgiving far more practical and systematicassistance – both through encouragingthe sharing of knowledge throughoutthe companies it backs and through itsready access to relevant experts.

The aim is to improve managements’ability to build strong, growingbusinesses; creating sustainable value.This means developing or supportingstrategies that will enable faster growthand backing them with stronger, moreflexible organisations. Successfullyimplemented, there are benefits for allstakeholders – equity shareholders,management, employees and customers.

Civica: growth at the doubleFor public sector software and services provider Civica,an ambitious drive to double revenues in four years is beinghelped not only by 3i’s investment but also by practicalsupport, expertise and ideas.

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Planning for growth3i aims to raise the ambitions of itsportfolio companies. Active Partnershipis designed to assist in implementinggrowth strategies to help companiesachieve their full potential. For example,at public sector software and servicesgroup Civica, 3i is helping to supportplans to double revenues in four years,building on the already successful growthof the company in software to helpestablish a complimentary services andoutsourcing-led business.

Across its portfolio, 3i is involved inhelping to solve a range of key practicalissues – all of which involve a degreeof change. It is also introducing trainingfor investment professionals in order toimprove their ability to contribute in

Just a few months after 3i backedCivica in its £190m public-to-privatetransaction in April 2008, it is helpingthe provider of software and servicesfor the public sector to implement astrategy designed to double revenueswithin four years. Achieving this willreinforce Civica’s position as a marketleader in its sector.

3i’s main role is to support key elements ofCivica’s planning and delivery as it seeks tobuild on existing relationships and a strongmarket position, to target larger serviceand outsourcing opportunities.

Saving money and improving quality“Our customers are under pressure toimprove services while making ambitiouscost savings,” says Simon Downing,Civica’s CEO. “With our experience andexpertise there is a real opportunity todemonstrate how re-engineered processescoupled to effective, and often outsourced,IT systems can help achieve this.The combination of professional advice,

technology and management services inorder to respond to broader improvementprogrammes is central to our strategyfor growth.”

The company aims to introduce this changein its business model throughout itsinternational markets of the UnitedKingdom, Australia, Asia Pacific and theUnited States. It already sells services andoutsourcing to some clients but plans tomake this a structured proposition that itsclients need and understand.

Outsourcing in SingaporeIn Singapore, for example, the Ministry ofEducation has outsourced library services for365 schools to Civica. Under the agreement– the first time that a completely outsourcedmodel has been used in a library setting –Civica provides and manages library stafftogether with all the library systems, aswell as helping to define and manage thecurriculum, buying and distributing electroniccontent and books. “Combining Civica’sbusiness process and operational expertise

Successfully implemented,there are benefits for all

stakeholders – equityshareholders, management,employees and customers.

07

Active Partnership

with core business systems means we canhelp the customer to achieve improvementsin service delivery along with greaterefficiency by managing the business processfrom end-to-end,” explains Downing.

Practical help and new ideasLiz Sands, Director, and Simon Freer, the3i Partner who leads the technologypractice and sits on Civica’s board, areworking alongside Downing and othermembers of the management team todevelop and test the extended servicesand outsourcing proposition. Sands is alsoanalysing how Civica’s skills can be developedto support a broader service-led organisation.Downing emphasises the value of hands-onhelp from a partner that can offer new ideas,and the resources to structure new initiatives.He also believes that a fellow shareholderhas far greater alignment of interest thanan external consultancy receiving a fee.“The last thing we need is another set ofslides and theory – Liz helps us with thepractical challenges we’re facing andensures we maintain our focus and pace.”

For Downing and the Civica managementteam, this capability differentiates 3i.“The combination of a strong private equitybacker that also has the resource andcommitment to support the developmentof the business is ideal. For our customers,challenged to deliver better services withgreater efficiency, it helps to have anexperienced partner. At Civica, we alsorecognise the benefit of practical externalhelp to support us in achieving our objectives.”

For our customers, challenged to deliverbetter services with greater efficiency,it helps to have an experienced partner.At Civica, we also recognise the benefitof practical external help to support usin achieving our objectives.Simon DowningCEO, Civica

the boardroom. This encompasses arange of strategic and operational areas,including working capital management,sales strategy, pricing strategy andlean operations.

Active Partnership has been indevelopment for some time. But withthe economic environment deteriorating,the competitive advantage it will give3i-backed companies will be moreimportant than ever. “The current marketclimate is reinforcing our thinking thatwe need to work harder to maximise thepotential of our portfolio companies,”says Jonathan Russell, 3i’s Global Headof Buyouts. “We need to engage inpractical improvement programmesthat protect our downside in the currenteconomic environment and will acceleratevalue creation when the cycle turns.”

Managing changeThe success of the Geneva eventplaces Active Partnership under thespotlight. The large number ofcompanies attending illustrates quitehow many are undertaking significantchange as they seek to increase theirvalue. In the case of hedge fundservices company Butterfield FulcrumGroup, 3i-backed Fulcrum Group hasrecently acquired the much largerButterfield Fund Services, creating thechallenge of integrating two businessesand the opportunities of far greater scale.For Agent Provocateur, the luxury lingeriegroup, change stems from opening newstores in their existing markets andexpanding elsewhere.

It is the job of 3i’s investmentprofessionals to help companies suchas these reach their full potential.“We are seeking to help companiessuccessfully lead and deliver changein a challenging environment,”says Liz Sands, 3i’s Director runningthe Geneva event. “My personalmeasure of success is to help thesecompanies achieve extraordinaryresults in difficult times.

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For Dr Eric Souêtre, CEO of the rapidlyexpanding Labco network of clinicallaboratories, this fragmentation spellsopportunity. “The prospects forconsolidation are extremely good,” hesays. “The reason this has not happenedbefore is that complex regulations inmany countries mean you have to own alab jointly with a biologist or a clinician.This has deterred a lot of players andacted as a barrier to entry.”

Labco has developed a business modelthat meets this challenge, enablingit to bring together laboratories tocreate distinct advantages for patientsthroughout Europe, as well asgenerating synergies, improvingquality and delivering economies ofscale. This helps make new diagnostictechnologies available to patients early,ensures the quality of testing andenables labs to remain profitable inspite of tough tariff regimes.

Healthcare professionals as partnersAll of Labco’s 250 laboratories – whichmake it Europe’s largest clinicallaboratory network – are managed byindependent healthcare professionals.They are partners in the group andhave an interest in its success. Sincestarting in France in 2003, this structurehas helped Labco grow quickly byacquisition. It is now also present inSpain, Germany, Italy, Portugal andBelgium. Between 2004 and 2007,ebitda (earnings before interest, taxes,depreciation and amortisation) grewby more than one-and-a-half times to€46.5m and revenues by more thantwo-and-a-half times to €222.1m.To takeLabco through its next phase of growth,it raised €728m of funding in July 2008.This has taken the form of equity, debtand mezzanine financing. 3i was thelead equity investor, and also helpedthe company negotiate with the providersof debt and mezzanine finance.

Partnership with 3iAccording to Souêtre, an importantreason for selecting 3i was its abilityto work in a partnership-style businessmodel that meant no single entity couldbe a majority investor. “3i’s ability towork effectively as a minority investoris very unusual,” he explains. “Many ofthe other private equity firms that investas a minority partner find it difficult notto behave like a majority investor.”

The size of Labco has allowed it toestablish centres of excellence fordifferent types of medical diagnostics.For example, the July 2008 acquisitionof Sampletest, a key player in theSpanish and Portuguese diagnosticsmarket, brought a Madrid-based labwith specific expertise in the advancedtechnology of predictive testing. Thismeans, for example, that healthy womencan be screened to test the likelihoodof their developing breast cancer. If therisk is high, they can be checked fortumours on a regular basis.

Scale also improves the service tophysicians. Labco can now give themdirect online access to test results,together with explanatory notes thathelp them reach a diagnosis.

Labco has grown quickly to become Europe’slargest network of clinical laboratories. In orderto continue that growth, and the benefits itbrings for patients, it turned to 3i – for funds,fundraising support, and for help identifyingfurther opportunities around the world.

Europe’s expanding medicaldiagnostics sector is highlyfragmented. Across the continent,

there are tens of thousands of privatelyowned clinical laboratories testingblood and tissue samples, as well asconducting radiology scans.

diagnosing aroute to better

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[insert title]

€15bn market for blood testingLabco’s laboratories currently focus ontesting blood, a market that is worthapproximately €15bn annually inEurope. This is growing quickly as newtechnology means that blood testingcan be used to test for an ever greaterspectrum of disorders, including the riskof developing psychological illnesses,such as depression and schizophrenia.Blood testing can also now be used topredict the reaction of tissue to specificdrugs. This is especially useful fortailoring the drugs to the patient insome cancer treatments.

“A clear advantage of the network isthat it allows us to promote these newtechnologies,” explains Souêtre.

In the future, Souêtre – who has a PhDfrom Paris University in Neuroscience,an MBA from France’s HEC school ofmanagement and was a practicingpsychologist – sees the possibility ofexpanding beyond blood testing. Theother two areas of medical diagnostics,radiology scanning and tissue testing,are similarly fragmented. These, he says,could double the size of the marketLabco addresses.

Investing more than moneyWhen Labco raised €728m of equity, debt and mezzanine financing in July 2008,having 3i as a lead equity investor was a great help, says CEO Dr Eric Souêtre.“3i has a very good reputation, with lots of experience in healthcare,” he says.“This clearly is reassuring for financial institutions.”

In the few months since its investment, 3i has used a combination of this expertiseand its network to identify acquisition targets in Germany and the United States.

It has also helped Labco to structure its organisation to ensure that managementis strong enough to control rapid growth, by introducing Daniel Bour, former CEOof General de Santé, as Non-Executive Director – bringing seasoned Healthcaremarket knowledge and in-depth expertise of a build-up growth story. 3i’sEuropean Head of Healthcare for Growth Capital and a member of the QuintilesBoard, Denis Ribon, and Partner Richard Bishop, have also joined the board.

healthcareExpanding into North AmericaIn the meantime, he is planningacquisitions in Germany, Eastern Europeand the United States. 3i’s internationalnetwork is helping him identifyopportunities. “We know that we haveopportunities to continue growing at arate of more than 50% per year, which is

our target for the next few years,” saysSouêtre. In so doing, Labco will notonly generate strong returns for itsfamily of minority shareholders, but alsohelp patients across Europe by makingthe latest diagnostics technology morereadily available.

Europe’s need to replace ageing, inefficientpower plants and to control carbonemissions, is generating fresh opportunitiesto back innovative power-plant developersand supply-chain companies.

Yet with clean coal technology still in itsinfancy, nuclear power carrying politicalrisks and long development timeframes,and with renewable energy sources notsufficiently scalable, the threat ofa potential capacity gap is emerging.This threat will become more apparentas many of Europe’s coal and nucleargeneration plants are retired over thenext 10–15 years due to age and, in thecase of coal, non-compliance with newemission regulations.

Efforts to close this gap are startingto be addressed by entrepreneurialindependent power generation developers.“We believe there is a lot of opportunityand requirement for new-builds,” saysMartin Giesen, CEO of 3i-backedAdvanced Power, a power plant developerthat is developing plants in Belgium,Germany, Spain and the US usingmodern combined cycle gas turbine(CCGT) technology.

“Utility companies in Europe have beenslow to realise there is a large gap openingup, starting with the Netherlands, the UK,and then spreading into Germany. Spainhas a large requirement to switch overfrom coal and oil to gas-fired plant,while Italy will also shift from oil to gas.”Growing competition for gas suppliesand gas-fired generation equipment hasbrought opportunities to back supply-chaincompanies and niche operators too.

Last year 3i backed the €360m buyout ofGerman generator-set maker Motoren-Werke Mannheim, which supplies highlyefficient gas-powered solutions tocommercial and industrial users.

Gas fills the energy gapIn the long-term most observers believeEurope’s power needs will be met by amix of gas, coal, nuclear and renewablessuited to both security and emissionsrequirements. However, right now,modern CCGT technology – which isfar cleaner than the average Europeanpower plant – is the most practicalenergy source. German-headquarteredpower group RWE estimates that nearly50 gigawatts (GW) of gas-poweredcapacity will be constructed by 2012,compared with 25GW of coal and 6GWof nuclear. The IEA is forecasting thatgas will power a third of all Europeancapacity by 2030 – up from 20% today.

“The simple need for more power isthe principal driver of the currentinvestment phase,” explains Ian Russell,Sector Adviser at 3i and former CEOof Scottish Power. “Due to the problemswith constructing nuclear and coal plant,and because renewables do not provideenough reliable volume, gas is seen asthe only way to fill the gap.”

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gashookedA45% increase in

capacity – an extra300 gigawatts of

power – will be requiredacross the European Union(EU) by 2030, accordingto the InternationalEnergy Agency (IEA).

on

The troubles with gasYet even for gas there are difficulties.In particular, the rush to add capacityis creating supply chain shortages.Engineering, procurement andcommissioning prices have risen 50%in the last 12 months, and there is ashortage of key components. RWE’sprediction for new construction ofnearly 50GWs is far more conservativethan the 90GWs in planning.

Security of supply at reasonable pricesis also an issue with almost a quarterof the EU’s gas coming from Russia.And there are lower emitting fuels thangas as the European Union’s 27 memberstates strive to reduce emission levelsby 80% by 2020 (using 1990 as a base).

Back in the 1990s, the first major dashfor gas left investors wounded. Industryderegulation, plentiful supplies of NorthSea gas and new turbine technologyencouraged utilities and independentdevelopers in the UK to build mainlygas-fired plants. The subsequent over-capacity led to a halving of wholesaleelectricity prices earlier this decade.But the boom-and-bust cycle is unlikelyto be repeated this time around becausethe drivers of investment are different,according to Mark Kerr, a Director of 3i’sOil, Gas & Power team. “This time theabsence of utility-scale alternatives togas coming on-stream in the near termand meeting emission reduction targetswill mean we have a big reliance on gas.This also then brings security of supplychallenges,” he says.

Due to the problems withconstructing nuclear andcoal plant, and becauserenewables do not provideenough reliable volume,gas is seen as the onlyway to fill the gap.Ian RussellSector Adviser,3i and Non-executiveChairman of Advanced Power

2008 2010 2015 2020

61

68

43

-4

5% = minimumreserve capacity

10% = desirablereserve capacity

Source: RWE Fact Book (2007) – Generation Capacity in Europe

Rese

rve

capa

city

ingi

gaw

atts

Severe capacity shortage by 2020

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Dash for gas

Building a diversified supplyIf Europe is to avoid becoming over-dependent on gas, certain renewabletechnologies will have to play a muchlarger role in power generation mix.Solar is looking highly promising incertain geographies. “With increasedenergy prices and improvements in thesupply chain, solar is becoming morecompetitive against conventional fuelsand can be constructed on a larger scalethan previously,” says Andrew Cox,a Director in 3i’s Infrastructure team.

Offshore wind is likely to eventuallydeliver power on a utility scale but needsto overcome technical and logisticschallenges which are likely to takeanother 10 to 20 years to fully resolve.Onshore wind is already proven andis expanding rapidly to fulfil its role.

These are areas where 3i has made anumber of investments including currentinvestment GES, a global leader in windfarm construction and maintenance and,until recently, Electrawinds, the Belgian-based wind turbine developer andoperator. Electrawinds’ managementre-purchased 3i’s shareholding inAugust 2008 after a successful capitaldevelopment phase was achieved.

However, it is unrealistic to expect evenproven renewables to fill the potentialgeneration gap. A robust power gridin Europe needs a diversified energyportfolio – ranging across gas, clean coal,nuclear and renewable technologies.Achieving this will take a concertedeffort on the part of governments, utilities,independent developers and investors.In the meantime, this new dash for gasis creating plenty of opportunities forentrepreneurs and investors.

To download ourGas and Power thoughtleadership publicationplease visit:www.3i.com/publications

Thought Leadership: Gas and Power

The last dash for gas?Keeping Europe out of the darkness

Across Indonesia, Malaysia, ThePhilippines, Singapore, Thailand andVietnam, they expanded at GDP ratesranging from 4.8% to 8.5% in 2007.Even with the current global slowdown,forecast growth rates range from 4.4%to 8.0% over the next four years1.

Attracted by this growth, private equityinvestment has increased from almostnothing in 1997 to peak at US$12.9bnin 20072, with minority investmentsdominating. In 2008, however, activitylevels have declined and are forecastto end the year considerably lower atUS$6.6bn, reflecting the harsher climatein markets globally.

“When I first came here in 2000, a friendof mine said to me that the key to Asia isflexibility,” explains Mark Thornton, thePartner who co-heads 3i’s Asia businessfrom Singapore. “This has played to ourstrengths, because with our differentbusiness lines such as buyouts, growth

capital and infrastructure we can applyour capital to different situations.”Within the past four years, for example,3i’s deals have included three growthcapital investments, Franklin Offshore,Pearl Energy and Salamander Energy;the funding of Asia Capital Re, areinsurance start-up; the buyout ofLHi Technology, a medical componentmanufacturer; and the infrastructureinvestment in Oiltanking Singapore,an oil tank storage services company.

Even so, making these investments isfar from straightforward. Private equityinvesting in the region is less than10 years old, and the flow of potentialdeals is less predictable than in theestablished US and European markets.There have been many examples ofprivate equity firms waiting years to findinvestments, and of deals turning sour.

Other challenges stem from the fact thatminority investments are still the mostcommon, meaning that private equityfirms must form strong partnerships withlocal entrepreneurs. Furthermore, with theexception of Singapore-based companies,publicly available financial informationregarding companies is less plentifuland less reliable than in more developedmarkets. “Beyond Singapore it is virginterritory,” remarks Thornton. “There is ahuge track record of people trying to dobusiness and finding it too difficult.”

Singapore mitigates riskEvery private equity company has its ownmethods of operating in this environment.3i has tended to invest in well-managedSingapore-based businesses that benefitfrom growth across the region. Forexample, Pearl Energy, an oil explorationand production company that 3i investedin for two years until 2006, was managedfrom Singapore, but owned drilling rightsin Indonesia, the Philippines and Thailand.

3i also focuses on the sectors where ithas specialist sector expertise and thereare good prospects for growth. In oil andgas, high commodity prices have boostedlocal exploration and production activity.In financial services – such as assetmanagement and insurance – Asia’sincreasing wealth and Singapore’sstrategy of becoming a neutral financial

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dooropening

to Southeast Asia

the

Fuelled by a growing young middle class, theirdesire to buy houses and consumer goods, touse banking facilities, to eat out at restaurants

and generally to indulge in the trappings of 21stcentury affluence, the Southeast Asian economiesare growing – and maturing – fast.

We are most interested in dealing withthe companies that can see the benefit ofour international network and experience,and how it can help them.Mark ThorntonPartner & co-head of 3i’s Asia business

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Southeast Asia

1 According to the Economist Intelligence Unit database2 According to the Asia Venture Capital Journal

Despite high rates of growth, investing inSoutheast Asia takes flexibility and an eye for risk.But partnering with the best local companiesprovides access to exciting expansion prospects.

services centre (the Switzerland of Asia)is paying off. Healthcare, similarly, isbenefiting from greater affluence, withincreasing demand for medical devicesand provision of healthcare services.Finally, consumer-related products asa whole are natural beneficiaries ofthe region’s swelling middle class andchanging spending habits.

Additionally, 3i’s Singapore teamintentionally seeks out investments whereit can provide more than just capital.“We are really most interested in

dealing with the companies that can seethe benefit of our international networkand experience, and how it can helpthem,” says Thornton. For example, 3i’soil and gas expertise and strong networkhave helped Franklin Offshore toexpand its international client base.

Youthful potentialThe matching of private equity capital tobusiness need is far less straightforwardin Southeast Asia than in moredeveloped markets. Yet, as their healthygrowth rates demonstrate, and withmany of the region’s 500 million peopleenjoying increasing wealth andspending more on goods and services,it is such young markets that sometimesoffer the best opportunities.

3i EXPANDS IN ASIA

19973i opens Singapore office, its first in Asia

2001Hong Kong office opens

2004–07Completes key investments includingAsia Capital Re, Franklin Offshore, LittleSheep, Pearl Energy and Salamander

2005Mumbai office opens and makesan initial investment in India’sNimbus Communications

2006Singapore office leads IndiaREITinvestment, 3i’s first pure realestate investment

2008The investment in LHI Technologybrings our portfolio to 29 directinvestments within Asia.

200 14,000

12,000

10,000

8,000

6,000

4,000

2,000

0

180

160

140

120

100

80

60

40

20

0

deal

volu

me

deal

valu

e$m

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008est

deal volume deal value $m

CAGR volume ‘97-07: 17.4%CAGR value ‘97-07: 60.4%

Investment in Southeast Asia

winninga

3i has long worked with some ofthe world’s most respected businessleaders to fulfil the potential of itsportfolio companies. Under a newname, the Business Leaders Network,these flexible partnerships willcontinue making a vital contributionto business success.

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com

Chambré is now Chairman of twocompanies in 3i’s portfolio – Apatechand Axellia. His interest in workingwith 3i is driven by the excitingopportunities that arise from its uniquedeal flow. “3i identifies companies thatare at points of change and helps themto evolve rapidly,” he says. “Thatdovetails perfectly with my personalgoals. I have the opportunity to tap intothe very broad pipeline of deals that 3ioffers, as well as to generate transactionsmyself. This gives me an exceptionallywide range of companies to evaluate.”

Responding to an increasinglycomplex global scenarioWorking with outstanding managersand entrepreneurs has long been animportant part of 3i’s value creationprocess. When Cristina Grace joined3i in 2007 to take forward this aspectof 3i’s heritage, then known as PeopleProgrammes, a global review highlightedthe scope to build on strong foundations.

“3i has long built strong relationshipswith great leaders, who share ourpartnership ethos and play a critical partin the success of our portfolio companies,”

says Grace. “3i’s business is constantlyevolving and our challenge is to ensureour relationships with business leadersstay closely aligned.”

Three developments in 3i’s strategy areshaping the network. Firstly, the businessis becoming increasingly global, with agreater focus on stimulating portfoliocompanies’ cross-border growth. Secondly,3i is now focussing on making fewer,larger investments which are demandingnew leadership skills and experience.Thirdly, the increased focus on sectorknowledge creates a premium on leaderswho share the thirst for applyingindustry expertise.

As Grace observes: “Overall, we face anincreasingly complex scenario. Today wehave a strong focus on building relationshipsthat is finely attuned to the currentdirection of our investment strategy andpriorities. No two relationships are everthe same, so we have identified flexibilityas key. With each leader, we work in adistinct way, helping them to use theirstrengths to provide the greatest impactand unlock the full potential of thebusinesses in which we invest.”

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Business Leaders Network

binationWith an outstanding track record of growing

life sciences companies into businessesof profit and scale, Peter Chambré is one

of the most respected leaders in his sector. In 2006,AstraZeneca bought a company he led, CambridgeAntibody Technology, for around €900m, leavingPeter eager for a fresh challenge. He chose towork closely with 3i.

Why? In Chambré’s words: “My ambition is tocontinue to lead healthcare companies through theirnext phase of successful development and therebycreate exceptional returns – I believe that those aregoals that can best be met in partnership with 3i.”

industry, and Fulcrum, a leadingindependent hedge fund administratorthat has recently completed a significantacquisition to become ButterfieldFulcrum Group. Bhargava was appointedto board-level roles in both.

For Bhargava, working with 3i isabout both parties bringing somethingof value to the table. “3i has to havea need for whatever skills you have tooffer,” he says. “If you can match theirneed with your appetite for risk, youhave a winning combination.”

A unique and dedicated resource3i’s Business Leaders Network ismanaged by dedicated directorsembedded in the global business.Collectively, the team covers 3i’s entiregeographic footprint, while alsoproviding alignment to the sector-ledinvestment approach. By combiningintimate local knowledge with effectiveoperation as a global team, they are aunique resource within the business.

The team includes long-standing 3iprofessionals, together with recent recruitswho have added strength in specificsectors and regions. In Grace’s view:

“They’re an enormously experienced,capable and talented group of peoplewho add a lot of value to investmentteams and portfolio companies through awide range of activities, from board-levelrecruitment to management evaluation.”

Strong local roots enable each directorto understand the best way to managethe interaction between market dynamicsand 3i’s needs. Yi Li, who joined in 2006as the Director for North Asia, sees that:“The profile of business leaders is quitedifferent here. They tend to be youngerand fully employed by multinationalcompanies overseeing operations inChina. The high calibre people we liketo attract are already very busy inexecutive or entrepreneurial roles. Thispresents a challenge and highlights theimportance of a strong network.”

With each leader, we work in a distinct way,helping them to use their strengths to thegreatest impact and to unlock the full potentialof the businesses in which we invest.Cristina GraceGroup Director, Business Leaders Network

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Fluid and aspirationalAs a former partner in the leadershipservices practice of Whitehead Mann,Grace understood that the new name,Business Leaders Network, wouldconvey a sense of fluidity and aspirationwhile sign-posting a clear intent andbeing quickly understood globally.

Individual business leaders continueto take on board-level executive andnon-executive roles in 3i’s portfoliocompanies. They also work with 3i’sinvestment teams to add value in avariety of other ways, from theassessment of potential deals and thedevising of value-creation agendas togiving companies advice as theyimplement and adapt their plans.

A small number of highly proactive,entrepreneurial individuals join 3i’sinvestment teams as Senior Advisers– as Akshaya Bhargava did in 2006.He worked with 3i colleagues toanalyse the market systematically foropportunities to apply his well-provenleadership skills in financial servicesoutsourcing. As a result, in 2007, 3imade investments in KNEIP, whichtransmits information for the funds

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Business Leaders Network

Li’s counterpart in New York, KennaBaudin, joined 3i last year as theDirector for North America and alsocoordinates the financial services sectornetwork globally. In her view: “Thenetwork helps us to differentiate ourselves,which is vital in a very developed privateequity market like the US, where 3i isstill a relatively recent entrant. The namechange and shift in focus are an importantpart of building a strong reputation inNorth America.”

Flexible relationships:meaningful rewardsThe relationships within the BusinessLeaders Network are fluid, flexibleand unique, so they change over time,in response to market opportunities.To reflect this, a range of rewards offermeaningful financial recognition thatreflect the specific business contributionsmade by individual leaders. These mayinclude consultancy fees for project-based roles, success fees for dealorigination, and co-investmentopportunities for selected board roles.

The innate flexibility of the BusinessLeaders Network enables 3i’s investmentprofessionals to access a resilient andfluid resource that adapts to the specificneeds of each current and potential

portfolio business. It’s a question offinding the right chemistry, in whichthe attributes of the leader form awinning blend with 3i’s house style,and its emphasis on partnership,ambition and pace. Grace sums upthe essence of the Business LeadersNetwork simply: “We achieve a lot moretogether than we could separately.”

As Global Lead Partner for Healthcare,Alan MacKay has worked closely withChambré and other business leaders.“We look to form partnerships withpeople who are proactive andentrepreneurial,” MacKay says.“Inevitably this means people who arecomfortable shaping their own futures insometimes ambiguous environments.”

At the same time, 3i is clearly lookingfor the classic hallmarks of greatleadership – the ability to set strategiesand lead change, to apply insight andinspire people, and to deliver growthand value. It’s a tall order but it offersgreat rewards and can be a highlyattractive option for someone who alreadyhas an outstanding track record and isthinking, “what next?”.

3i has to have a need forwhatever skills you haveto offer. If you can matchtheir need with yourappetite for risk, you havea winning combination.Akshaya BhargavaCEO, Butterfield Fulcrum Group

Business LeadersNetwork Directors

Anna JosephAnna’s focus is in the Consumerand Business Services sectors,working with investment teamsacross Europe.

Cindy CascianiCindy heads our CFO practiceand is the point of contact forthe UK and Benelux markets.

Claudia KaupmannsenneckeClaudia leads on the developmentof the Healthcare sector networkin Europe. Based in Germany, she isalso a point of contact for Spain.

Doro KronenberghsDoro specialises in infrastructureappointments in Europe and isalso a point of contact for theNordic region and Germany.

Jean-Louis GrangéJean-Louis is responsible forthe Business Leaders Networkin France.

Kenna BaudinBased in New York, Kenna isthe point of contact for NorthAmerica across all sectors and theglobal lead on Financial Services.

Luke AndersonLuke specialises in the Technology,Media and Financial Servicessectors across Europe and is alsopoint of contact for Italy.

Yi LiYi’s focus is the North Asia regionacross all sectors, working closelywith investment teams based inBeijing, Hong Kong and Shanghai.

Cristina GraceCristina is Group Director ofthe Business Leaders Network.

taking

TIC cuts across many parts of the globaleconomy and includes the testing ofgoods and services, the inspection ofequipment to ensure compliance withdomestic and international laws andregulations, and the provision ofcertification services.

The market is rich with opportunity.In Europe, for example, it is worthan estimated €12– €15bn, is highlyfragmented and is growing atapproximately 8–10% a year. What’smore, income streams are typically

both visible and defensible since theytend to be based on long-term contractsto deliver specialist services.

The appointment of Ad Verkuyten asChairman of the Nordic group Inspecta,confirms the fast-growing industry’sposition as one of 3i’s core areas of focuswithin the Business Services sector.Indeed the experienced Dutch managerhas been central to the development of3i’s investment strategy in the sector.

Legal requirement for testing“We spent time thinking about theEuropean market, searching foropportunities and building contacts togain the right exposure. While we weredoing that, Inspecta came to the market,”Verkuyten recalls. With Alan Giddins,3i’s Global Head of Business Services,Verkuyten identified Inspecta becauseup to 75% of the company’s revenuesderive from long-term contracts and 65%of turnover is associated with its clients’legal requirements to undertake tests.

3i’s secondary buyout of Inspecta fromthe Finnish private equity group MBFunds in June 2007 was the first steptowards building a position in a sectorthat 3i believes is set to perform stronglythroughout the current economic cycle.The company, headquartered in Espoo,Finland, employs more than 1,000 staff

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advantage of

te

In an era of heightened legislationand internationalisation of trade,the testing, inspection and

certification (TIC) industry is defyingthe downturn and presenting someexciting investment opportunities.

Ad Verkuyten:

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Ad Verkuyten, one of 3i’s business leaders, hasspent the last 18 months helping to develop 3i’sinvestment strategy in the testing, inspectionand certification sector.

and offers a wide range of business andhealth and safety services to clients inthe construction, energy, infrastructureand manufacturing sectors in the Nordicand Baltic states.

“TIC has a role everywhere as anindependent view of quality and safety isneeded by either clients or governments,”says Verkuyten. “Most of the sector isshielded from a slowdown – exceptperhaps the testing of consumer goods.”The sector also brings opportunities forinternational expansion and consolidation,he adds. Even though regulations canvary dramatically between countries,the methods used to test and inspectare broadly similar. “Markets developdifferently, and the language andstructure of reporting varies, but the ITused to report and store the informationis the same.”

Proven track recordVerkuyten, who is based in London andspeaks four languages fluently, bringsoutstanding knowledge and experienceto his role as a senior adviser to 3i’sBusiness Services team. As CEO ofinternational oil, gas and petrochemicalstesting group Röntgen Technische Dienst(RTD), he quadrupled ebitda anddelivered an outstanding return for itsowners between 2003 and 2006, whenthe company was sold.

Ad Verkuyten has successfully led anumber of international businessesand delivered exceptional results fortheir shareholders. The 57-year-oldDutchman, who has degrees inEconomics and Process Engineering,began his career in the textiles industry.As CEO of Blydenstein-Willink, hetransformed the traditional Dutch blind-maker into an international business

€12–€15bnIn Europe, testing, inspectionand certification is worthan estimated €12–€15bn,is highly fragmented and isgrowing at approximately8–10% a year

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Testing, inspection and certification

that now trades under the Verosolbrand name. In 2006 he was appointedto head the private equity-backedTIC group RTD, where he quadrupledturnover in just three years. He is anon-executive director of two Dutchcompanies as well as being Chairmanof Inspecta and a senior adviser to 3i’sBusiness Services team.

His strategy at RTD was threefold. First,he completed a series of cross-borderpurchases including acquisitions inGermany, France and Australia. At thesame time, he invested in research anddevelopment to offer clients a moreefficient service. For example, the firmintroduced a device that can test thestructural integrity of pipes withoutremoving their insulation.

Finally, and crucially, he showed potentialcustomers the benefits of regularexpenditure on inspection. “TIC accountsfor just 2–3% of a company’s maintenancecosts, but if anything goes wrong thereis an enormous price to pay. So we arehelping companies maintain both thesafety and continuity of their business,”he explains.

Restructuring InspectaVerkuyten has taken an active role inrestructuring Inspecta and drawing upthe company’s expansion strategy inhis first months as Chairman. Since theformer state-owned organisation wastaken private in 2002, revenues havealready grown from €25m to €106mlast year following 18 acquisitions inFinland, Sweden, Latvia and Estonia.

His first step was to recruit a new CEO,Mats Jungar, freeing former CEO SimoHassie to focus on the M&A strategy for

the business. He has also hired a newCFO. “We needed to introduce a differentset of competencies and transformInspecta into a more pro-active andinternational organisation.”

Working with Inspecta’s managementteam, Verkuyten is now turning hisattention to expansion into new regionsincluding Norway, Denmark, Poland andGermany. “The backbone of the business– the way we generate, supply and storeinformation for clients – is similar acrossall our geographies,” he says.

3i’s ability to attract and work withoutstanding individuals like Ad Verkuytenhas helped the company identify andsuccessfully pursue a promising sectorahead of the market. Earlier this year3i made a further strategic investmentin the TIC industry, taking private AIM-listed Inspicio, one of the world’s leadingcommodity, food and environmentaltesting groups in a €425m deal. Inspicio,like Inspecta, will continue to pursue aninternational expansion strategy.

“3i knows most of the players of any sizein Europe and they are straightforwardand professional to work with,” Verkuytensays. It’s a creative partnership that is setto keep on delivering.

generating outstanding growth

APPOINTMENTSAnna Joseph has joined the Business Leaders Network as aDirector. Anna started her corporate life at McKinsey beforemoving into retail marketing with the high street chain BHS.Anna has joined 3i from Korn/Ferry – the executive search firm– where she was a Partner in the Consumer Practice workingon UK, pan-European and international assignments.

Amit Saboo has joined the Indian Infrastructure team as anAssociate Director from KPMG India where he was a Directorwith the financial advisory group. Amit spent close to 11 yearswith KPMG India working with a mix of local and internationalclients in the infrastructure and industrial markets sectors.

Bob Stefanowski has joined as Managing Partner and Chairmanof 3i North America. Bob joins after 14 years with GeneralElectric, most recently as President and CEO of GE CorporateFinance Europe.

Liz Sands joins as a Director to help drive 3i’s Active Partnershipprogramme. Liz began her career at Natwest and from therejoined AT Kearney’s Financial Institutions Group. Liz then spent12 years in professional services, delivering multi-million poundchange programmes in both the private and public sectors.

Luke Anderson has joined the Business Leaders Network asa Director. Earlier in his career Luke was one of the foundersof a specialist human capital and executive search consultingbusiness, e9c that partnered with venture investors in the UK.Luke was previously Director, Human Capital at ImprimaturCapital, a private equity investment business operating acrossEurope, CEE, Asia Pacific, China and Latin America.

Peter Watts joins 3i as a Director in the Banking team. Priorto 3i, Peter worked at Citigroup as a Senior Credit Officer withresponsibility for risk management in Western Europe for creditexposure to clients in the Automotive, Building Materials,Construction, Consumer, Healthcare and other industrial sectors.

Reginald Chambers has joined as a Vice President in theInfrastructure team in New York. Prior to joining 3i, Reggiewas a Vice President in the Global Energy InvestmentBanking Group of Citigroup Global Markets Inc.

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newsInternationalin brief

Reginald ChambersAmit Saboo Liz SandsBob Stefanowski Luke AndersonAnna Joseph Peter Watts

AWARDSASCRI Private Equity Awards 20083i has been awarded best Growth Capital Deal in 2007 forClinica Baviera, one of Spain’s leading chains of ophthalmologyclinics specialising in laser refractive surgery. In April 2007,Clinica became the first ophthalmic refractive laser businessIPO in Europe.

The Private Equity Awards 20083i has won House of the Year and Large Deal of the Year forNCP. The judges were impressed by the cleverly structuredfinance package, the increase in employee numbers and thesubsequent sale of half the business, with 3i retaining thehigh-growth NCP Services business.

BUSINESS LEADERS NETWORKAlan Peterson has been appointed as Chairman to Azelis Group.Alan was previously Chairman on Rubicon Retail Ltd, PaperPakHoldings Ltd, Refresco Holdings BV and HSS Hire Group.

Andreas Gaddum has been appointed Chairman of DruckChemie.His previous experiences include Member of the ManagementBoard of Fresenius AG, CEO of Fresenius Proserve as well asmanagement positions with Eurest and CWS.

Andy Roberts has been appointed as Chairman of Civica.He is a Non-executive Director of a number software relatedcompanies and Non-executive Chairman of Vega Group plc.

Daniel Bour, former CEO of Général de Santé has beenappointed as Non-executive Director of Labco.

Giacomo Santucci, ex COO of Gucci Group and ex MD ofSalvatore Ferragamo, has been appointed to the board of APBags, the handbag and accessories division of Antichi Pellettier,as Non-executive Director.

Joe Schenk, former CFO of Jeffries Group Inc, has beenappointed Non-executive Director of Gain Capital, a leadingprovider of on-line currency exchange.

Maurizio Ria has been appointed CFO of Azelis Group.Previously he was MD of Duke & Kay, a Director at Tim TransitionManagement and he also co-founded Top-Executives International,a partnership based in New York, London, Lugano and Milan.

Mike Jeffries has been appointed Non-executive Chairman atNCP Services. He is currently the Chairman of VT Group plcand was previously the CEO of WS Atkins.

Stefan Zimmermann, former Assistant Plant Manager of theCologne Engine Plant of Ford, has been appointed COO ofMWM GmbH, previously known as Deutz Power Systems.

Steve Dolton, formerly the CFO of Azzurri, a business backedby 3i, has been appointed CFO of NCP Services.

Wilfried Schroeder has been appointed Consultant atTSC/Infraserv.

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International news

AP Bags Italy Not disclosed ‘Affordable’ luxury handbag manufacturing group, comprising four owned brands.Consumer

DruckChemie Germany €134m Develops, manufactures and supplies chemical and technical products and accessories for the printingBusiness Services buyout industry, as well as providing waste reprocessing and recycling services.

Axellia Nordic €258m Oslo based world-wide developer and supplier of specialist active pharmaceutical ingredients,Healthcare buyout specialising in injectable generics.Butterfield Fulcrum North America $57m Fulcrum Group and Butterfield Fund Services have merged to form a world top 10 independentGroup investment alternate and fund administration company.Financial Services

Hyperion UK €36m A fast expanding, independently owned insurance and underwriting company. Since its inception itFinancial Services investment has grown to become a leading global provider of a range of specialist insurances.

SLR Consulting UK €41m One of the fastest growing environmental consultants in the UK with a broad base of blue chipBusiness Services investment customers in the energy, waste management, planning & development, manufacturing, mining

and financial sectors.

Radius UK €134m Supplier of high quality, innovative, plastic pipe systems to gas, water and telecommunicationsGeneral Industrial buyout utilities. The company partners with and supply to companies of all sizes, from local distributors

to utilities operating across national boundaries.

Civica UK €295m A market leader in software-based solutions that help organisations to improve service delivery andTechnology buyout efficiency, with specialist expertise in local government, social housing, enforcement, education and

regulated markets.

LHI Technology Asia €72m The only Asia-based supplier to develop, manufacture and sell medical cable assemblies exclusivelyHealthcare buyout to medical device companies and OEMs internationally.

Soya Concept Denmark Not disclosed Fast-growing clothing company, selling value-priced women’s clothing to more than 1,000 independentCinsumer clothing retailers across Scandinavia, Benelux and Germany.

Unión Radio Spain €100m The leading Hispanic radio operator with a presence in Spain, Latin America and the US. It has 28Media investment million listeners worldwide.

Labco France €140m A leading European network of diagnostic centres, providing quality diagnostic services to patients,Healthcare investment doctors and hospitals.

COMPANY AND SECTOR COUNTRY VALUE

INVESTMENT HIGHLIGHTS

ABX Benelux €750m Belgian-based global freight forwarder with 6,500 employees in 35 countries and operatingGeneral Industrial through 65 other countries through agents, partners and joint ventures. Trade sale to DSV.

Giochi Preziosi Italy €800m The largest player in the Italian toy market and fourth largest toy operator in the world. Secondry saleConsumer to Clessidra.

Van Wijnen Benelux €130m Residential and commercial construction, inner city development, renovation, maintenance andGeneral Industrial project development.

Senoble France Not disclosed Fourth generation family business and one of Europe’s largest manufacturers of dairy products andConsumer fresh deserts. Stake sold back to Senoble family, as 100% owners of the business.

Freightliner UK Not disclosed Freightliner is the UK's leading rail logistics company, moving containers and heavy goods acrossGeneral Industrial the national rail network. Sale to Bahrain based Arcapita.

Vetoquinol France €250m Develops and produces medicines for treating pets, livestock and horses, mainly for prescription.General Industrial The group’s products cover 75% of therapeutic segments. IPO on Euronext Paris.

Sampletest Spain €220m Market leading clinical laboratories provider in Spain and Portugal. Trade sale.Healthcare

Little Sheep Hong Kong HK$3bn The largest domestic restaurant chain in China, specialising in Mongolian-style hot pot cuisine.Consumer It operates company-owned and franchise restaurants worldwide. IPO on Hong Kong Stock

Exchange (Partial realisation).

Comac Italy €72m A group of companies in the cleaning sector that designs and manufactures floor cleaning machinesGeneral Industrial for professional, industrial and commercial use.

Novem GSE Not disclosed The leading supplier for interior wood trim components in the automotive sector. Its products are designedGeneral Industrial to be fitted to car interiors as fully finished components. Secondry sale to Barclays Private Equity.

Electrawinds Benelux Not disclosed The leading independent renewable energy company in Belgium. The company’s main focus is onOil, Gas & Power developing, owning and operating renewable energy generation assets.

COMPANY AND SECTOR COUNTRY VALUE

REALISATION HIGHLIGHTS

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boostingenergyChinese

Don Bai, Senior Adviser to 3i in Asia,sees new investment opportunitiesemerging as China seeks fresh energysupplies and support from Westernpartners to meet growing demand.

China is already the world’s largestconsumer of coal and is beaten only bythe USA in its consumption of petroleumproducts. What’s more, demand for coal,oil, gas and renewable energy sourcesis forecast to rise sharply over the nextdecade as China’s economy grows ataround 10% a year.

The country’s challenge is to satisfyits hunger for power at a time of risingenergy prices, uncertain supply andmounting environmental concerns.As part of the solution, China isencouraging foreign investors to applytheir management skills and technologyto the problem in partnership with agrowing number of domestic privatefirms. Controls on ownership of, andinvestment in, energy companies havebeen relaxed since the country joinedthe World Trade Organisation in 2001,despite the sector’s strategic importance.

Good prospects for investors“China is experiencing strong economicgrowth and seeing a substantialincrease in energy consumption. This,coupled with a fast growing, indigenousenergy industry, makes it an attractiveprospect for investment,” says Don Bai,a former Vice President of US oil andgas service corporation Halliburton, whoworks for 3i as a senior adviser taskedwith developing investment prospectsin China’s energy market.

According to Bai, fresh opportunities toinvest are emerging wherever Westernenergy industry expertise can deliverimprovements in the performance ofChinese companies, particularly in thefields of oil and gas exploration andproduction, and the design of renewableenergy technology, such as turbine bladesand solar panels. “China does not lack

cash but Western partners can bringtechnology and management expertise,”he says.

3i’s long track record – particularly in oiland gas, and increasingly in renewableenergy – puts it in a good position to helpbuild the diversified energy industryChina needs. Already, two 3i-backedEuropean renewable energy companiesare active in the country. Gamesa Energiay Servicios, the Spanish wind farmconstruction and maintenance company,and Swedish materials group Diab,which makes turbine blades, are bothhelping to power up Chinese wind farms.

Some of the best investment opportunitieslie in the oil and gas sector. Explorationand production is increasing both offshoreand in the Western provinces. Foreignenergy firms are co-operating on thedevelopment of at least 20 oil and gasfields across China. And this upsurge inactivity is creating demand for oil servicescompanies that can support the new fields.“There are great opportunities

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China energy

The spectacle of the Beijing Olympics signalled notonly China’s arrival on the global stage but also thecountry’s enormous appetite for energy.

Don BaiIn February 2008, 3i appointed Don Bai, a former vice presidentof US oil and gas service company Halliburton, as a Senior Adviserin its Business Leaders Network, charged with developinginvestment opportunities in China’s energy sector. At Halliburton,Bai gained rich operational and M&A experience. He has lived andworked in China for the past 14 years.

Energy sources used to generateChina’s power in 2007

73%coal

22%hydropower

4%oil and gas

1% renewablesSource: government statistics

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for private equity in upstream services –formation evaluation, drilling, productionenhancement, technologies – everythingto do with getting oil out of the ground,”says Bai.

Government backingfor renewablesBai is also enthusiastic about thefast-growing renewable energy market.China’s government has pledged togenerate 15% of the country’s energyfrom non-carbon sources by 2020, twiceas much as in 2005. Backing this intentionwith firm action, the government hasdesignated the renewables sector an‘encouraged foreign investment industry’,giving companies both discountedlending and preferential tax rates.“The leadership is committed to cuttingpollution for both economic and socialreasons,” Bai says.

While hydropower schemes account formost of China’s non-carbon energy output,wind farms are the fastest-growingsource of green energy. Since 2005, thecountry’s wind generation capacity hasincreased by more than 100% a year,according to the Global Wind EnergyCouncil. Encouraged by state backing,there are now more than ten quotedrenewable energy companies in China.

Coal is China’s greatest source of power,yet investment has proved problematic.There is no doubt that mining companiesare exploring more widely, digging more

deeply and extracting more efficientlyto increase supplies – and they areturning to smaller, niche ventures toimprove technology, infrastructureand transportation.

But coal has carried significant risks.Many companies in an industry thatwas privatised a decade ago are beingforced to close because they do not meetimproved safety standards. “Westerncompanies have a strong culture ofhealth and safety whereas for Chinesepartners this is something that needsto be cultivated,” Bai says.

Foreign investors are also wary ofbacking the development of clean coaland coal-to-liquid technology, whichtransforms carbon into syntheticpetroleum. In August 2007, the Chinesegovernment suspended all but twocoal-to-liquid projects, both by the

There are great opportunities for privateequity in upstream services – formationevaluation, drilling, productionenhancement, technologies – everythingto do with getting oil out of the ground.Don BaiSenior Adviser, 3i

South African group Sasol, to ease tightcoal supplies and curb excess investmentin the sector.

Moves to increase innovationLooking ahead, the removal of China’soil subsidies is likely to drive furtherinnovation and investment across itsenergy industry. At present Chinesepetroleum prices are capped. But thereare plans to eliminate the subsidies thegovernment now pays to refineries, toease the gulf between high internationaloil costs and low domestic prices. “It’s apositive sign for the development of amarket economy and the growth of anenergy-saving movement,” says Bai.

There is little question that the investmentopportunities in China’s energy marketare substantial. The challenge now is tonavigate successfully through a rapidlychanging sector.

97%increase in oil consumptionforecast between 2004and 2025(Energy Information Association)

38%increase in coal consumptionforecast between 2008and 2020(China Coal Industry DevelopmentResearch Center)

100%increase in renewableenergy supplies forecastbetween 2005 and 2015(National People’s Congress)

To provide feedback on this magazine, please email: john.scott@3i.com

Designed and produced by to the point +44 (0)20 7378 6999 ref: 8147.Edited and written by Clerkenwell Consultancy (www.clerkenwellconsultancy.com).

www.3i.com

About 3i3i is a world leader in private equity.We focus on Buyouts, GrowthCapital, Infrastructure and QuotedPrivate Equity and invest acrossEurope, Asia and North America.

Internationally connectedAsia: Beijing, Hong Kong, Mumbai, Shanghai, SingaporeEurope: Aberdeen, Amsterdam, Barcelona, Copenhagen, Frankfurt,Helsinki, London, Madrid, Manchester, Milan, Paris, Stockholm, ZurichNorth America: Menlo Park, CA, New York, NY

Our competitive advantage comesfrom our international network and thestrength and breadth of our businessrelationships. These underpin the valuethat we deliver to our portfolio and toour shareholders.

Printed on FSC accredited paper using vegetable inks.For further details on Corporate Social Responsibility, please visit www.3icr.com.3i Investments plc is authorised and regulated by the Financial Services Authority.M63908. October 2008.