EMEA: News Analysis: Infra funds turn their firepower on listed companies

17 July 2018 - 12:00 am UTC

Infrastructure funds this week launched a series of bids for listed companies. Is this the start of a flood of potential similar deals? Rory Gallivan reports

A recent flurry of deal activity has highlighted the growing trend for infrastructure investors to target stock market-listed companies.

On Monday (17 July), Dalmore and Equitix joined forces to make an approach for London-listed John Laing Infrastructure Fund (JLIF), while Morgan Stanley Infrastructure Partners is making an offer for the shares it does not already own in European railcar lessor VTG. Also this week, Italian investor F2i joined forces with media company Mediaset to bid for Milan-listed EI Towers, an operator of towers for media and telecommunications.

All this follows Macquarie’s takeover of Denmark-listed telecoms giant TDC in February this year.

Infrastructure funds buying listed assets is not a new phenomenon; in its time Macquarie has taken private Techem and Rome Airport, while funds have also acquired a number of yieldcos, such as GIP’s acquisition of Spanish renewable energy company Saeta Yield.

The current deal activity is largely for supply and demand reasons. Increasing amounts of capital are being allocated to funds, while stock market volatility is creating buying opportunities. 

In many cases, such as JLIF, infrastructure investors will no doubt have been attracted by share price falls that have left the assets looking undervalued. Shares in JLIF, which owns PFI assets in the UK and rail assets in Barcelona, have been hit by the possibility of nationalisation in the UK and uncertainties around the push for Catalan independence from Spain.

However, industry observers also see other factors at play. “Share price falls are of course a reason but infrastructure investors are also looking at the listed sector because they want to avoid the increasing competition in bidding situations for private companies,” one industry player noted.

With more money being allocated to infrastructure, private auctions increasingly attract a large number of bidders. In contrast, with listed companies there is often no competition or a maximum of two bidders, he said. 

He also noted that, as infrastructure matures as a sector, rather than just targeting infrastructure assets that are already owned by peers, investors are seeking opportunities for assets that may not currently be viewed as traditional infrastructure assets but can be transformed so that they do. Often these assets will be in the listed sector.

One example of such an asset is TDC, which was bought by a consortium led by Macquarie Infrastructure and Real Assets (MIRA) earlier this year. The MIRA consortium’s acquisition of TDC raised eyebrows because it has a large customer-facing business, giving it exposure to GDP and changing consumer tastes. 

But buying TDC also offered MIRA the opportunity to shift the business towards infrastructure by investing in its fibre networks and opening these up to rival operators, which will enable the owners to benefit from more stable contracted revenues. Buying TDC gave the consortium access to its large network of fibre and copper infrastructure as the incumbent telecoms company in Denmark. 

Other examples of infrastructure investors targeting listed companies include Antin Infrastructure Partners earlier this year buying CityFibre, a London-listed company building fibre networks in UK cities, while other listed assets on the market, such as Aeroports de Paris, could also be targeted by infrastructure investors. 


Undervalued assets

Also, in some cases, notably JLIF, infrastructure investors will no doubt have been attracted by share price falls that have left the assets looking undervalued. Shares in JLIF, which owns PFI assets in the UK and rail assets in Barcelona, have been hit by the possibility of nationalisation in the UK and uncertainties around the push for Catalan independence from Spain.

Another industry observer noted that it is becoming more difficult to find transformation opportunities such as TDC within the private market, meaning investors will increasingly have to look at listed companies.

“Traditional assets such as water companies are likely to have been in the hands of other infrastructure investors so there might be limited opportunities to improve them; infrastructure investors are having to look for new kinds of assets and often these are listed,” he noted.

Infrastructure investors targeting listed companies often involves them becoming private, although this is not always the case. Morgan Stanley Infrastructure first invested in VTG when it took a 29% stake in the Frankfurt-listed railcar lessor in 2016.

Also in 2016, GIP and a group of Limited Partners acquired a 20% interest in Madrid-listed natural gas procurement, liquefaction, storage, regasification and transportation company Gas Natural Fenosa (GNF).

By taking minority stakes in listed companies, infrastructure investors can still play their part in shaping the strategy of the business. GIP said at the time of its acquisition of the 20% stake in GNF that it would be able to use its experience in the energy sector to help it implement a strategic plan that has included a shift towards renewable energy. GIP said at the time of its acquisition that buying the stake in GNF would enable it to benefit from the “strong, stable cash flows” its gas and electricity assets generate, a usual criteria for infrastructure investors.

However, some industry investors said they believe the infrastructure investors targeting listed companies is likely to increasingly involve taking them private to avoid the volatility of the stock market, something that is generally unwelcome to infrastructure investors.

Other industry observers noted that, while infrastructure investors dislike the day to day volatility that comes with stock market listings, they take a long-term view and are not deterred by the short-term factors that cause the volatility.

“In a sense private markets are the natural home for infrastructure investors because they are not affected by short-term concerns such as nationalisation,” noted one industry observer.

Another observer said that it makes sense for infrastructure to be privately-owned because when it is publicly-listed, the investment loses the stability that is supposed to be one of the main benefits of infrastructure. 

“Ideally infrastructure investors would look to take public companies they invest in private, although this is not always possible,” he noted.

“Whether they take them private or buy stakes in listed companies, I think we will see listed companies increasingly being targeted by infrastructure investors,” he said.

Notable Infrastructure Fund-backed Take-Private Transactions    
Name Exchange Acquisition Price FC Date Stake Offer Price Premium  Acquiror
John Laing Infrastructure Fund (JLIF) LSE GBP 1.41bn Jul-18* 100% 20.6% premium to closing price 15 July 2018 Dalmore Capital and Equitix
CityFibre LSE GBP 538m  Apr-18* 100% 93% premium to closing price on 23 Apr 2018 Antin Infrastructure Partners and Goldman Infrastructure Partners
TDC CSE EUR 5.48bn Apr-18 100% 28.9% premium to closing price on 12 Jan 2018 PFA, PKA, ATP and Macquarie Infrastructrue and Real Assets (MIRA)
Gas Natural Fenosa BME EUR 3.80bn Sep-16 20% 0.26% premim to closing price on 9 April 2016 Global Infrastructure Partners
Capstone Infrastructure Corporation TSX CAD 460m Apr-16 100 44% premim to Jan 2016 share price iCON Infrastructure
Techem  FWB EUR 1.48bn Dec-07 72.83% 21.95% premium to closing price on 19 Oct 2007 Macquarie Infrastructrue and Real Assets (MIRA)
Source: Inframation
*announcement date