# 3i _Crisis clarifies. What remains after is often simpler and stronger._ --- ## Near-death and rebirth By December 2008, 3i Group's shares had fallen below their 1994 listing price. The company traded at a 75% discount to net asset value. The leverage carried into the financial crisis forced a £732 million rights issue just to survive. 3i had been a fund manager - raising third-party capital, investing it, charging fees. The model looked fine in good times. In bad times, the mismatch between illiquid assets and investor expectations nearly killed the company. Simon Borrows arrived in 2011, became CEO in 2012, and announced a strategic reset. The company, he said, was "too decentralised and lacking focus and consistency." The prescription: concentrate the portfolio, prioritise realisations, strengthen the balance sheet. Do less, better. What emerged was something different from what had gone before - a proprietary capital investor with no exit clock, able to compound winners indefinitely. --- ## The Action investment In 2011, 3i acquired a majority stake in Action, a Dutch discount retailer, for £134 million. At the time, Action operated 250 stores across three countries, generating roughly €80 million in EBITDA. Fourteen years later, that stake is worth £21.4 billion. Action operates more than 3,000 stores across fifteen countries. EBITDA exceeds €2 billion annually. The Times called it "the best private equity deal ever." The growth has been almost entirely organic. Action opens roughly one store per day - 352 in 2024, a target of 380 in 2025. No acquisitions of competitors. No roll-up strategy. Just a simple format, replicated systematically - [[Process power]] in retail form: low prices through [[Scale]], efficient purchasing, and cost-conscious culture. The model borrows from the hard discounters that [[Retail Disruptors]] documents - Aldi and Lidl - but applies it to non-food retail. 3i's role has been to provide patient capital and operational support while Action executes. They increased their stake over time - largely funded by Action's own dividends - from the original position to 60.1% today. The decision not to exit, year after year, as the valuation climbed from hundreds of millions to tens of billions, is the actual achievement. --- ## Permanent capital, concentrated Most private equity has an exit clock. Funds have finite lives. LPs expect distributions. The pressure to sell successful investments is structural, not optional. 3i escaped this constraint by transforming into a proprietary capital investor. They invest primarily off their own balance sheet, with some co-investment for selected assets. No fund with a fixed life. No pressure to return capital on someone else's schedule. The freedom this creates is real. Typical PE holding periods average 5.7 years. 3i has held Action for fourteen years and shows no interest in selling. They can let compounding work. But the freedom cuts both ways. Action now represents 73-76% of 3i's portfolio value. By market capitalisation, 3i is among the top twenty companies on the London Stock Exchange - larger than Tesco or Vodafone. Almost all of that value sits in a single discount retailer. Moody's flags the concentration as credit risk. 3i's response: Action's growth potential outweighs the concentration concern. The position is a feature, not a bug. --- ## What this isn't 3i is sometimes mentioned alongside serial acquirers - the [[Constellation]]s and [[Danaher]]s that compound through repeated M&A. The comparison doesn't quite fit. Serial acquirers have a repeatable process for finding, buying, and improving businesses at scale. Constellation does hundreds of small deals annually. Danaher runs 150 due diligences per year. The skill is the process itself: sourcing, evaluation, integration, repeated indefinitely. 3i made one exceptional investment and had the discipline to hold it. The skill is different - pattern recognition in a single opportunity, then patience while compounding does its work. Closer to Berkshire Hathaway buying Coca-Cola than to Constellation buying vertical market software companies. Action's growth model is organic expansion, not acquisition. They're rolling out a proven format across Europe, one store at a time. The playbook resembles McDonald's or Starbucks more than Danaher or [[Lifco]]. --- ## The interesting questions **Did the crisis create the strategy?** The 2008 near-death experience forced 3i to concentrate and simplify. Without that pressure, would they have held Action this long? Or would the old instincts - diversify, manage fees, return capital to LPs - have led them to exit years ago at a fraction of today's value? **What happens at scale?** Action's store count potential in existing and identified markets is roughly 4,850, according to 3i's estimates. Current count: around 3,000. There's runway, but it's finite. France, their largest market, is already showing slower growth. The US market is being studied but not yet entered. **Is concentration courage or recklessness?** The case for concentration: Action is an exceptional asset with visible growth runway, and diversifying into lower-quality investments would dilute returns. The case against: single-asset risk is real, and discount retail is cyclical and competitive. The answer probably depends on time horizon. **Can the model repeat?** 3i has other investments - roughly 35 in the private equity portfolio - but nothing approaching Action's scale or quality. The question is whether the Action outcome was skill (identifying and holding a compounder) or circumstance (one great deal, held by necessity through a crisis). If skill, there should be more Actions. If circumstance, 3i's future returns depend on an asset they didn't fully anticipate. --- ## The lesson 3i's transformation offers a specific insight: the advantages of permanent capital are real, but they require the temperament to actually use them. Most investors, facing a 100x gain, would take profits. Most fund structures would force them to. 3i's shift to proprietary capital removed the structural pressure to exit, but someone still had to make the decision - year after year, as the numbers climbed - to do nothing. That's harder than it sounds. The discipline of inaction, when action is available and would lock in gains, is its own skill. 3i proved they have it, at least once. Whether they can repeat it, with Action or with something else, remains to be seen. ---