EMEA: News Analysis: Abertis takeover has spawned a global behemoth

25 May 2018 - 12:00 am UTC

Such is the firepower of the combined Atlantia-ACS-Hochtief-Abertis entity, the super-corporate will now be able to take on almost any infrastructure finance deal in the world.


This month’s EUR 16.7bn acquisition of Abertis by three leading players is almost the finale of a long and complex process. But market sources believe this is just the beginning of a new expansion era – not least further acquisitions – for the combined giant powerhouse.

The transaction, said to be the largest ever in the transport infrastructure space, saw Italian investor Atlantia take control – jointly with Spanish developer Grupo ACS and its German subsidiary HOCHTIEF– of Abertis, which is largely regarded as one of the world’s most successful companies in the toll road space.

As part of the deal, Abertis’ shares are being transferred to a holding company owned by Atlantia (50% plus one share), ACS (30%), and Hochtief (20% minus one share).

Having that global access and coordination makes it a much stronger participant for any big thing that comes out in this space, regardless of where it is


The acquisition will still take a few weeks to be fully complete, and there are some uncertainties about what will happen to the remaining Abertis minority shareholders which have not accepted Atlantia-Hochtief-ACS’ EUR 18.36 per share offer – equivalent to EUR 16.7bn for the entire group.

But rougly 80% of Abertis shareholders have already agreed to sell, effectively sealing the deal. And this new group, sources agree, will not sit idly by but try to take advantage of its huge purchasing power as soon as possible.

Once the deal is fully closed, it will start actively considering opportunities, including in markets such as Australia and North America where Abertis-Atlantia have been less visible to date, but where new toll road opportunities could arise. According to ACS’s recently published figures, the combined company could target potential global opportunities in brownfield and greenfield markets for a value of around EUR 200bn in the next four years.

One source said that the deal has created a global platform that can further expand because of its combined presence across Europe, Latin America, North America and Australia. “Having that global access and coordination makes it a much stronger participant for any big thing that comes out in this space, regardless of where it is,” this person said.

According to market sources, one of the biggest opportunities is just around the corner: the planned privatisation of France’s largest airport operator, Groupe ADP. The French government is yet to formally launch this transaction. Also, it still hasn’t set down what exactly it plans to do, or passed a law to allow the privatisation to take place. But unlike several months ago, the deal is now a given in the sector, and likely to launch in the not too distant future.

If, as some market experts believe, the transaction launches around 1H19, it will be a major opportunity for the Atlantia-led machine. By then, the Italian group will fully control Abertis’ French subsidiary Sanef, the country’s third largest motorway operator. This will be in addition to an existing controlling stake in Nice Airport, the third largest airport in France. “At that point, it would be very difficult for the French government to tell them they are not welcome to bid for such a strategic asset, as they’ve effectively become a leading player in the French infrastructure space,” a market expert said. For a group like Vinci, which is expected to fight hard to win an ADP deal, “it’s definitely not going to be a walk in the park,” this source added.


Huge debt mountain, but manageable

It is true that Atlantia and its two partners have had to raise EUR 10bn of debt and EUR 7bn of equity for the entire Abertis operation. But sources agree that by the time the ADP transaction comes to market, the Abertis deal will be digested, and “Atlantia’s gun will be seriously reloaded”.

Rating agencies have so far confirmed this view and don’t seem overly concerned about the massive level of debt raised for this deal. S&P confirmed Atlantia’s BBB+ rating and revised its outlook from negative to stable. It did the same for Abertis’ BBB rating and outlook. Moody’s confirmed its Baa2 for Atlantia, keeping the negative outlook.

Some people had suggested that before the deal, Atlantia was a little under-levered compared to some other peers


A 15 May S&P report explained that despite Atlantia taking on significant additional acquisition debt, this would be “partly mitigated by already-executed sales of minority stakes, planned disposals of Abertis’ non-core assets, and synergies from the joint operation of assets in overlapping regions”.

S&P analyst Tania Tsoneva told Inframation: “Despite a higher price than originally anticipated as well as full cash offer rather than a combination of shares and cash, their credit metrics are still in line with our rating guidelines, hence we’ve changed the outlook to stable.” Last year, S&P assigned a negative outlook to Atlantia as a result of the announced plan to acquire Abertis, because it was not known “how much they would end up paying, whether there would be a cash or non-cash element, and whether a planned EUR 2bn of disposals would take place as planned,” she added. Now that these sales – including shares in Autostrade per l’Italia (ASPI), Venice Airport group SAVE and a small stake in Nice Airport – have taken place, and more non-core disposals such as Abertis satellite business Hispasat and telecom tower group Cellnex for another EUR 2bn are agreed or expected, “this has made the impact more manageable,” and resulted in the improved credit outlook.

A source close to the deal added that the new debt mountain needs to be looked at in the context of the cash flow profile and overall financials of the company. “Some people had suggested that before the deal, Atlantia was a little under-levered compared to some other peers,” this source said. The new group, he added, will have roughly EUR 8bn of EBITDA and EUR 40bn of debt, meaning that the company’s leverage is in line with other transactions in the space.

As part of the agreement between the three buyers, Atlantia has undertaken to buy up to 24% in Hochtief, leaving ACS with just above 50% in the German PPP developer. Atlantia’s investment in Hochtief, as explained by the Italian group back in March, is aimed at “maximising their strategic relationship and the synergies between themselves and Abertis in the form of new PPPs”, so that the new group will focus not only on brownfield projects, but also greenfield opportunities.

Whilst there is some scepticism about a pure concession player like Atlantia getting involved in the EPC sector, one senior source told Inframation that this investment in Hochtief has created ‘optionality’: “If one day, they were to feel that the combination of engineering and contracting and concessions is really the way to go, they could seek to increase their stake to create a new construction-concession champion similar to, or even bigger than, Vinci and Ferrovial,” he said. This, the source added, is something not on today’s agenda, but it could be, five years from now. The market shouldn’t exclude a move of this type, otherwise sitting on this 24% for a long time would make little sense for Atlantia.


A win-win for all

Market commentators also agree that the three buyers’ decision to approach the bid together and avoid a costly bidding war was a smarter move than facing each other in an auction. One source said: “They didn’t pay it cheap, but got a fair price: these assets are very sought after, and in an auction, the buyers could have done much worse”.

S&P’s Tsoneva added that the initial uncertainty about this potential bidding war was the reason to maintain the negative outlook assigned last year: “We didn’t know whether they were going to pay even more in competition with other bidders. But at the end of the day, when they joined forces with their competitors, it became clear it was a smart move because they avoided bidding a significantly higher price. Otherwise, it would have been problematic for their balance sheets”.

They didn’t pay it cheap, but got a fair price: these assets are very sought after, and in an auction, the buyers could have done much worse


Also, having ACS in the acquiring consortium is likely to have made the Spanish government less reluctant to approve the transaction – whilst it had previously not been so keen on having Atlantia as the sole buyer of a national champion like Abertis, which many wanted to remain in Spanish hands. An interesting political overlay, according to a source, is that given Abertis is a Catalan company, from a central government perspective it is “quite meaningful that ACS has played a role. That sorted the ‘Spanishness’ of the offer needed in the eyes of the authorities and public opinion, and it also avoided the situation being taken hostage politically, because of the contrasts between the Spanish and Catalan government”.

The deal is expected to allow Abertis to “continue to grow in a more economically efficient manner,” a source said. “It now has the opportunity to get involved in projects that Hochtief may develop afterwards, so there is a lot more for them to grow, and relying on the financial support of Atlantia.”

For ACS and Hochtief, it has also appeared as the right deal, because ACS didn’t want to consolidate Abertis. Even when it launched its initial bid, the company was known to be seeking partners for the transaction. S&P revised both Hochtief’s and ACS’ outlooks to stable from negative and confirmed their BBB rating. The agency said it “continues to assess Hochtief as a core subsidiary of ACS,” whilst the deal will allow ACS to add some diversification to its business and at the same time not increasing leverage massively.

For Atlantia, the deal has added complexity, as Tsoneva put it. Following the Hochtief acquisition and also the Getlink acquisition earlier this year, Atlantia’s structure will become more complex, she argued. “Atlantia is changing a lot in a short amount of time – and whilst until now it was purely a player focused on toll roads and airports, it now has Abertis although it won’t own 100% of it, and then it has a significant stake in Hochtief – which may not make a huge difference in terms of additional dividends, but it changes the way we saw the business before. We didn’t anticipate they’d be participating in a construction company.”

But the deal has also allowed to achieve a planned diversification in the motorway space away from Italy, and this through one deal only. Atlantia is rated by S&P one notch above sovereign, and even though in the future Italy will continue to represent 45% of group business, Atlantia can be rated up to two notches above Italy. So if the rating of Italy were to go down by one notch, it might not affect at all Atlantia, and the Abertis deal supports this approach.

Overall, sources said, Atlantia was eying three areas in particular: the French motorways, the Spanish market, and a stronger presence in the Latin American markets. One source highlighted in particular how “French toll roads is a market where everybody wants to go, because it’s western Europe, core eurozone and there’s nothing of the sort in Germany”. As Vinci’s ASF was never going to be sold and in the case of Eiffage’s APRR only small stakes would be available to financial investors, “Sanef was the only thing that was really actionable for strategics”, this source said.

If Atlantia had not joined forces with ACS and Hochtief, its shares would now be negatively affected, according to sources. “Because of the political landscape in Italy, this might have become a risky transaction,” one said. “Now, instead, they appear as the main Europe-based concession player. Atlantia has become a must investment for anyone eyeing the European infrastructure space, and there are quite lots of them.”

More broadly, the deal could also highlight a new shift for strategics. “We know there’s a lot of money looking for assets and there’s allegedly not enough assets available for people to invest in,” one source said. “But seeing how strategics can put forces together and make combinations that actually make sense for everybody is very encouraging, because it shows there’s potential for more interesting things and large-size transactions to be done in this industry.”