3i, Europe’s leading mid-market private equity and venture capital company, today announces the successful £436m Initial Public Offering (IPO) on the London Stock Exchange of 3i backed Telecity Group, a pan-European operator of network independent data centres.

The IPO raised total proceeds of £96m.  Of this, £71m will be used to de-gear the company’s balance sheet and provide funds for an ambitious programme of new data centre development.  Existing shareholders sold only £21m of shares.  3i’s stake, immediately following admission, was 23.7%, worth £103m at the listing price of £2.20 per share.

3i identified Telecity’s potential early on, backing the start-up in 1998 and floating the business in 2000.  However, its first period as a quoted company was not a success and several rescue funding rounds involved 3i re-investing some, but not all, of its initial IPO profits.  By 2005, 3i had a 45% stake in Telecity, which had limited financial resources and whose stock market value, at less than £50m, reflected investors'' lack of faith in its prospects.  3i''s view was that industry consolidation was the route to creating value, but the stock price was not strong enough to allow the company to lead the process.  3i therefore formed a 50/50 partnership with Oak Hill Capital, a California-based fund with experience from the US of the data centre cycle and together they took Telecity private. 

Shortly afterwards, the industry consolidation began, with the purchase of key UK competitor, Redbus plc, and the installation of the Redbus management to lead the enlarged group.  The add-on acquisition of Globix followed shortly after.  With a major new focus on sales force effectiveness, the group began to achieve significant growth in turnover.  And in a business with high operational gearing, this led to rapidly improving financial performance.  Furthermore, with the company’s improved business model, greenfield investment in new datacentre space began once again to look attractive.  This growth opportunity, well presented by a strengthened management team, has now allowed a highly successful IPO.

3i Director, Ian Nolan said: “As with many technology businesses, the business potential is often as great or greater than envisaged, but can take much longer to come through than initially envisaged and this is a great example of how the involved and driving private equity model can create value for shareholders.

Telecity''s successful IPO today reflects the impressive achievements of the company whom we’ve been delighted to support over the last nine years.  The funds raised in the course of the IPO will allow them to move forward to the next phase of the company’s development.“