In the Telegraph today entitled 3i tumbles amid fears over its future, Ben Harrington notes that JP Morgan Cazenove analyst Christopher Brown yesterday warned: "There is clearly a risk that 3i – like any geared company – could go bust if current conditions persist for several years and refinancing is no longer possible."
However, whilst 3i’s carries high levels of debt, it seems unlikely that there will be any major problem much before the end of 2010, when there is a major debt repayment due. By then, hopefully, we will be seeing the light at the end of the tunnel and nearing the end of the current recession (depression?). It would appear that all 3i’s need to do is to ensure that its cash generation is on target, and that it is able to maintain current cash levels.
But will that suggest that its companies, including Civica, will not have access to significant funds to make further acquisitions? Certainly they’ll be under pressure to generate cash from their existing businesses, but further significant acquisitions may be off the agenda for the next couple of years.
Which might make it difficult for Civica to bid for IBS should it come back onto the market (and should Capita allow Civica to bid for it – something that I noted in yesterday’s blog post is unlikely to happen). This would be a major blow to Civica, which has grown successfully out of well timed and executed acquisitions.