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Private equity infrastructure deals are heading for a boom year. European conglomerates are looking to divest assets, regulators are increasing pressure on countries to meet alternative energy targets, and emerging market leaders are vowing to improve internal structures. Even the fundraising climate is improving.
Jesus Olmos, the head of European infrastructure at global buyout firm Kohlberg Kravis Roberts, said: There is a massive global need for infrastructure investment, estimated by some sources to range between $1 trillion and $3 trillion annually.
This requirement for capital is much greater than government and traditional sources of capital to this sector can support. As a result, a shift in supply and demand for infrastructure capital has been created, one that now favours private investors. This, coupled with the benefits associated with investments in the asset class, will drive infrastructure investing for the rest of 2010 and beyond.
Among the emerging markets, Africa is expecting a boom in green energy projects across the continent with a surge in renewable energy in South Africa as a result of the introduction of feed-in tariffs. However, it is India that is likely to see private equity funds playing a greater role in infrastructure deals.
According to Bloomberg, Indian Prime Minister Manmohan Singh said earlier this year that the government would need to invest $1 trillion in infrastructure between 2012 and 2017, double the $500bn it committed for the previous five-year period, with more than 50% expected to be raised from private investment.
Olmos said: We do believe that emerging markets such as India, where annual public infrastructure capital need has been estimated at $150bn, will present attractive infrastructure investing opportunities in the long term.
The third quarter has already seen private equity move into some big deals. The Blackstone Group announced its biggest leveraged buyout since 2007, with its $4.7bn acquisition of Dynegy, the US-based power utility, while in Europe CVC Capital Partners announced its $2.2bn purchase of Abertis, the Spanish toll road operator.
Mathias Burghardt, head of infrastructure at European diversified private equity firm Axa Private Equity, said: The market is increasingly active. There are far more deal opportunities now than six months ago, but there is also more competition in the market, in particular for regulated utilities assets. Western Europe and Australia are the main regions where core infrastructure assets are available and opportunities are being driven by unbundling regulation and the need for industrial firms to deleverage.
Last month, Goldman Sachs Infrastructure Partners, an extension of the US banks private equity practice, acquired 80% of a bundle of natural gas distribution assets from Enels unit Endesa, the Spanish power utility, for 800m.
According to Andy Pyle, transactions partner and infrastructure specialist at global consultancy KPMG, many European power conglomerates are under increasing pressure from the European Commission to sell off non-core parts of their businesses. Energy infrastructure unbundling will drive transactions in Europe next year and in 2012. The transport sector is also likely to witness a similar series of conglomerate divestments, creating further opportunities for private equity investors.
Political pressure imposed on many European countries to achieve renewable energy targets from solar, wind and hydro by 2020 is also mounting, bolstering the demand for renewable energy sources and security of supply.
Mark Florian, managing director at energy specialist buyout firm First Reserve Energy Infrastructure, said: European green energy targets have created a massive need for capital injections as new renewable generation is built and connected to the networks and storage and pipeline capacities are increased. Where investors can see they have strong and enforceable contracts and a reliable regulatory environment, they will be prepared to make long-term investments in major projects.
This month, First Reserve acquired Europes largest solar power plant, the 70-megawatt plant in Rovigo, Italy, for 276m, from SunEdison, a unit of semiconductor maker MEMC Electronic Materials. According to Florian, terms for projects such as Rovigo, with stable and secure revenues supported by the 20-year Italian feed-in tariffs, have definitely improved compared with a year or two ago, while there is also a greater availability of debt than six months ago.
Fundraising for infrastructure deals has picked up. US private equity firm Energy Capital Partners in August completed a $4.3bn fund. This month Antin Infrastructure Partners, an affiliate of French bank BNP Paribas, raised 1.1bn for its latest fund. Axa Private Equity has been marketing its third infrastructure fund to raise 1.5bn.
According to Axas Burghardt, the private equity fundraising landscape for infrastructure investments is improving, albeit slowly. Although European and US investors remain cautious, there is considerable appetite for infrastructure funds from investors in leading Asian countries such as Japan, Korea and China.
Demand grows for infrastructure assets in buyout industry
Jesus Olmos, the head of European infrastructure at global buyout firm Kohlberg Kravis Roberts, said: There is a massive global need for infrastructure investment, estimated by some sources to range between $1 trillion and $3 trillion annually.
This requirement for capital is much greater than government and traditional sources of capital to this sector can support. As a result, a shift in supply and demand for infrastructure capital has been created, one that now favours private investors. This, coupled with the benefits associated with investments in the asset class, will drive infrastructure investing for the rest of 2010 and beyond.
Among the emerging markets, Africa is expecting a boom in green energy projects across the continent with a surge in renewable energy in South Africa as a result of the introduction of feed-in tariffs. However, it is India that is likely to see private equity funds playing a greater role in infrastructure deals.
According to Bloomberg, Indian Prime Minister Manmohan Singh said earlier this year that the government would need to invest $1 trillion in infrastructure between 2012 and 2017, double the $500bn it committed for the previous five-year period, with more than 50% expected to be raised from private investment.
Olmos said: We do believe that emerging markets such as India, where annual public infrastructure capital need has been estimated at $150bn, will present attractive infrastructure investing opportunities in the long term.
The third quarter has already seen private equity move into some big deals. The Blackstone Group announced its biggest leveraged buyout since 2007, with its $4.7bn acquisition of Dynegy, the US-based power utility, while in Europe CVC Capital Partners announced its $2.2bn purchase of Abertis, the Spanish toll road operator.
Mathias Burghardt, head of infrastructure at European diversified private equity firm Axa Private Equity, said: The market is increasingly active. There are far more deal opportunities now than six months ago, but there is also more competition in the market, in particular for regulated utilities assets. Western Europe and Australia are the main regions where core infrastructure assets are available and opportunities are being driven by unbundling regulation and the need for industrial firms to deleverage.
Last month, Goldman Sachs Infrastructure Partners, an extension of the US banks private equity practice, acquired 80% of a bundle of natural gas distribution assets from Enels unit Endesa, the Spanish power utility, for 800m.
According to Andy Pyle, transactions partner and infrastructure specialist at global consultancy KPMG, many European power conglomerates are under increasing pressure from the European Commission to sell off non-core parts of their businesses. Energy infrastructure unbundling will drive transactions in Europe next year and in 2012. The transport sector is also likely to witness a similar series of conglomerate divestments, creating further opportunities for private equity investors.
Political pressure imposed on many European countries to achieve renewable energy targets from solar, wind and hydro by 2020 is also mounting, bolstering the demand for renewable energy sources and security of supply.
Mark Florian, managing director at energy specialist buyout firm First Reserve Energy Infrastructure, said: European green energy targets have created a massive need for capital injections as new renewable generation is built and connected to the networks and storage and pipeline capacities are increased. Where investors can see they have strong and enforceable contracts and a reliable regulatory environment, they will be prepared to make long-term investments in major projects.
This month, First Reserve acquired Europes largest solar power plant, the 70-megawatt plant in Rovigo, Italy, for 276m, from SunEdison, a unit of semiconductor maker MEMC Electronic Materials. According to Florian, terms for projects such as Rovigo, with stable and secure revenues supported by the 20-year Italian feed-in tariffs, have definitely improved compared with a year or two ago, while there is also a greater availability of debt than six months ago.
Fundraising for infrastructure deals has picked up. US private equity firm Energy Capital Partners in August completed a $4.3bn fund. This month Antin Infrastructure Partners, an affiliate of French bank BNP Paribas, raised 1.1bn for its latest fund. Axa Private Equity has been marketing its third infrastructure fund to raise 1.5bn.
According to Axas Burghardt, the private equity fundraising landscape for infrastructure investments is improving, albeit slowly. Although European and US investors remain cautious, there is considerable appetite for infrastructure funds from investors in leading Asian countries such as Japan, Korea and China.
Demand grows for infrastructure assets in buyout industry
