North America: AECOM to cut back infra investment and P3 business

06 November 2018 - 12:00 am UTC

AECOM is planning to reduce the scope of its infrastructure investment business function within AECOM Capital and is stepping back from P3 bidding, Inframation has learned. 

Several market sources confirmed the rumors, which started circulating last week. The decision was understood to be made in the middle of October. 

AECOM has made no mention of the decision in its press releases or filings. The firm has a results call scheduled for 12 November at noon (EST).  At 4 p.m. (EST) 6 November, the firm’s share price was USD 32.70.

The company is looking to focus instead on its design business and the real estate vertical, it is understood. Design-build infrastructure bids would still continue, it is understood. 

Additionally, the firm would still keep some investment capability in private infrastructure outside of P3s in a segment distinct from AECOM Capital, it is understood.

An AECOM spokesperson said the firm remains “committed to AECOM Capital and our firm’s design, build, finance and operate (DBFO) strategy,” adding that the company is actively engaged in closing the Michigan I-75 Modernization Project. “Looking ahead, AECOM Capital will continue to pursue equity investment opportunities that demonstrate the highest growth potential and strongest alignment with our integrated solutions,” the spokesperson added. 

The corporate decision is set to affect approximately 20-25 people within the AECOM Capital team, it is understood. AECOM Capital’s website lists 36 employees within infrastructure, PPP and real estate segments. 

Infrastructure investment within AECOM Capital is led by Karl Reichelt (PPP) and Mark McComiskey (infrastructure), senior managing directors. 

Both joined the firm with a remit to bolster the firm’s capital investments in North American P3s (Reichelt) and energy and power infrastructure (McComiskey). Prior to their appointments, the firm’s capital focus had been strictly within real estate investments. 

Reichelt joined AECOM from Skanska where he led the division’s P3 practice and previously worked under the former President George W. Bush administration as chief of staff for the General Services Administration. He is understood to be under consideration for a role in President Donald Trump’s administration. 

McComiskey was a founding partner of Vanwall Capital and held senior positions at Prostar and First Reserve. 

The corporate decision will not impact the financial close of the I-75 Improvement Project in Michigan, it is understood. AECOM, alongside other investors, is set to invest equity in the project and work on its design element. The firm has no role in the highway’s construction. 

I-75 was AECOM Capital’s first win. The company’s recent unsuccessful bids included the I-70 in Colorado, the LAX Conrac project and Kansas Airport P3. At press time, it was not clear if any power and energy assets had been held by AECOM Capital. 

Pricing of USD 600m in PABs for I-75 is expected in the coming weeks. Financial close is slated for 20 November, it is understood. 

Market concerns
AECOM’s decision to pull back from the P3 market and a DBFM strategy comes on the heels of Skanska’s 19 October decision to stop bidding for large construction P3s in the US. Skanska reached the decision after experiencing cost overruns on two projects: the new terminal at New York’s LaGuardia Airport and the I-4 road project in Florida, both of which have experienced delays, as reported by Inframation

The withdrawal of two major construction companies from P3s is shocking, surprising and strange, executives in the P3 industry told Inframation.   

One industry source said AECOM and Skanska are design firms that were “trying to force their way into the equity space without really adding much value.”  

A second industry source said he did not blame AECOM for exiting the P3 industry. “It’s a tough business,” the source said. “I know [AECOM has] had a few unsuccessful years, but I thought the I-75 win would have launched them.”

A third source said that “there is a feeling that too much risk is being allocated to the private sector and it’s not sustainable.” The risk allocation is “out of whack,” the source said. 

Multiple sources said that delays in projects such as Purple Line LRT in Maryland, the I-70 in Colorado, the LaGuardia Airport Terminal B and the I-4 Ultimate in Florida, and the cost overruns associated with projects like the Tappan Zee Bridge may have spooked the market.  

A fourth industry source expressed surprise, saying that he expected to see firms “get smarter with what they bid and how they bid,” instead of leaving the industry altogether. “Construction companies learn from their mistakes, but I never thought they would be exiting the P3 industry.”

The source pointed out that strategies of listed companies like AECOM, Skanska, Granite and Fluor are under a greater spotlight than private construction firms, making it even more difficult to justify the P3 business after multiple failed bids or delays.

Reichelt and McComiskey did not return calls. 

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