Infrastructure M&A: Journey to the non-core: Six steps to non-core infrastructure success

by White & Case LLP

White & Case LLP

Success for investors in an increasingly crowded market will depend on fearlessness, efficiency and the ability to spot the right asset at the right time.

1. Non-traditional origination

Managers that can avoid the auction process and source assets on a bilateral basis have a real competitive advantage, as they won't get caught in a cost of capital shootout with institutional investors. The most effective non-core investors are marked by their ability to target deals from non-traditional sources.

2. Pursue avidly, manage effectively

As institutional allocations to infrastructure continue to rise, there will be pressure to find new areas of infrastructure in which to deploy capital. This process will require fund managers to enact operational improvements, push out the length of the contracts that underpin their revenues and, in some cases, cement the monopolistic position they inhabit in a given sector through acquisitive growth. Active management will enable fund managers to stay ahead of all but the best-resourced institutional investors who, in the main, would prefer to bid for more core infrastructure opportunities.

3. Keep an eye on new sectors

Non-core sectors expected to attract increasing infrastructure fund investment include smart metering businesses, asset-heavy infrastructure services groups and the European rail leasing market. Infrastructure funds have also begun to target data storage businesses and decentralised energy production, while aged care is viewed as a future opportunity.

Telecommunications infrastructure, midstream oil and gas, and car parks also continue to attract capital. Funds will also pursue outlier "infrastructure-like" opportunities such as crematoria or medical diagnostics businesses.

4. Check the definition

The infrastructure market is increasingly sophisticated, with investors finessing their investment approach by referring to opportunities as core, super-core, core plus or non-core to better reflect their risk profiles, and the types of returns they expect to achieve. However, to avoid a loss of trust with their limited partners, funds must be transparent about their strategies—and the risk they are looking to manage.

5. Don't be afraid of competition

Infrastructure funds are facing growing competition for non-core assets. Yet funds are increasingly being seen as performing the role of de-risking such assets to the point where they are ready to be acquired by institutional investors. As such, the growing institutional risk appetite for non-core can be viewed as a positive development for infrastructure funds.

6. Take exit opportunities

The movement of assets from infrastructure funds through to institutional ownership has been evidenced across a range of sectors including motorway services, UK rolling stock and car parks. This process, whereby assets are systematically de-risked, should provide a steady source of exit opportunities for infrastructure funds.

Antin and EQT Infrastructure are seen as being at the forefront of this transformation process. Antin's sale of UK crematoria business The Westerleigh Group in 2015 to the institutional investors the Universities Superannuation Scheme and the Ontario Teachers' Pension Plan is the most extreme example of this process, with the business case underpinned by the compelling long-term dynamics of the UK crematoria market. "Sometimes it's about de-risking and reducing complexity, but in other cases it's about making sure people understand the characteristics of businesses," says Antin's managing partner Mark Crosbie.

One definition—many sectors

The table below shows the breadth of non- core sectors into which Antin Infrastructure Partners invest

Non-core assets
Amedes Group, medical diagnostics, Germany
Eurofiber, fibre-optics network, Netherlands
Grandi Stazioni Acquisition, rail hub & services, Italy
Inicea, psychiatric clinics, France
Roadchef, motorway services, UK
Central Area Transmission System, gas transmission, U


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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