North America: Transurban wins A25 toll road

22 March 2018 - 12:00 am UTC

Australian highway developer Transurban announced today (23 March) that it will pay CAD 840m (USD 649.50m) to buy Macquarie Infrastructure Partners’ (MIP) A25 toll road in Montreal, Canada.

The purchase price represents an EBITDA multiple of 26x for the highway, which has a 35-year concession, according to Transurban’s investor presentation.

Transurban said in its announcement that it is targeting a 4Q18 financial close for the acquisition, pending approval under the Investment Canada Act.

In addition to the purchase price, Transurban will pay transaction costs of CAD 18m, which will be funded from its balance sheet.

A25 opened to traffic in May 2011 and has a concession that terminates in 2042. The road had average annual daily traffic of 44,616 vehicles in FY16 and 46,535 in FY17.

The road has a hybrid toll and availability payment structure, plus guaranteed toll income from the grantor Quebec Ministry of Transport (MTQ).

In its investor presentation, Transurban said it acquired the asset because it had demonstrated exceptional traffic numbers over the last seven years of operations. As a critical link in a heavily congested urban area, owning the motorway and presents opportunities to drive value through operational efficiencies, upgrades to customer products and network enhancements.

Chief executive, Scott Charlton, told analysts the company had been investigating the asset in detail for the past year and it will give it the opportunity pursue further investments in Montreal.

“We have been looking at this market for some time and have been doing a lot more detailed work over the past year [on the A25], then concentrated effort over the last six months,” he said. 

“[But] we wouldn’t go into a market for a single asset. We wouldn’t go into a market unless there was that potential there. We believe if you look at the Montreal market, the congestion levels, the government has been open to innovative transport solutions.”

In Australia, Transurban has used its existing toll roads to bargain with governments via their unsolicited proposals rules to get the exclusive rights to build new motorways. The company said the Ministère des Transports du Québec has a similar unsolicited proposals framework and there is only one other toll road in Montreal, the A30.

Charlton said he was unsure what gave Transurban the edge in the tender. But he believed the company did have some advantages in their technology and it may have been too small or too big an asset for competitors.

“It is a very interesting asset and has some unique characteristics around the tolling elements,” he added. “We have some unique elements around our tolling algorithms. Talking to some of the big sovereign players, it didn’t seem big enough for them. But [it seemed] too big for some of the smaller players.”

He said CAD 377m of existing asset level debt is due in 2023 and would be refinanced in Canadian dollars.

MIP’s advisor Macquarie Capital commenced the sale process in April 2017 and received expressions of interest from various international firms, as reported.

The A25 is a 7.2km toll road and bridge across the Rivière des Prairies in the Lanaudière region of Quebec that connects the north metropolitan area of Montreal with residential areas.

MIP won the concession in June 2007 alongside EPC contractors Kiewit and Parsons.