The continued influx of institutional capital has provided infrastructure funds, which are fast approaching the end of their tenor, with plenty of options to maximize value beyond simply selling off assets.
These include the creation of vehicles that allow the general partner to continue operating the assets, with limited partners either re-investing in the business or new limited partners being recruited to invest in the fund. Separately, the capital markets offer a solution in the form of dividend recapitalizations, which allow equity investors to take their money off the table before executing a sale.
The 11 funds that Inframation examined have vintages ranging from 2006 to 2009. The funds, which generally have tenors of 10 years including two-year extensions, are at, or close to, the end of their lifespan. The chart below lists assets these funds either continue to hold, have divested or placed on the auction block.
“With returns in the low teens, you probably want to hold onto that investment, particularly if your next option is to sell the asset and reinvest the proceeds in an investment with lower returns,” Conor C. Kelly, founder of Rubicon Infrastructure Advisors, said in an interview.
Corsair Capital, for instance, became the manager of the USD 3.4bn Gateway Infrastructure Fund in 2015 after taking over the 15-year fund from Citi. Rather then seeking traditional exits, Corsair structured transactions in which the capital it secured from new limited partners was funneled into three separate funds.
The first of those transactions – Corsair Vantage Group – closed on 4 February. The length of the fund changed from a closed-end fund to a perpetual fund while new limited partners were recruited. The fund holds one asset: Vantage Airport Group, a global investor and manager of airports. Separately, Corsair launched two separate processes for its 59.2% stake in Spanish toll-road operator Itinere and a 75% stake in Australian ports-operator DP World Australia.
In the core market, notable exits included Transurban’s acquisition of Autoroute 25 from Macquarie Infrastructure. Ontario Teachers’ Pension Plan sold off its 62.5% stake in ports operator Global Container Terminals to British Columbia Investment Management (bcIMC) and IFM Investors.
The value-added opportunities in the energy, power and renewable sectors made up the lion’s share of exits in 2018, which is expected to continue in 2019. All told, there were USD 18.82bn in brownfield transactions in the US in 2018, of which USD 14.7bn was in energy, renewables or power space, according to Inframation Deals.
“The most successful exists we are seeing are platforms where the buyer has the ability to work with a team to develop more assets of similar quality and put more money to work. That can be in any sector, but clearly the most activity has been seen in the wind, solar and hydro space,” said Robert G. Valentine, Macquarie Capital‘s head of infrastructure M&A Americas.
This was published on February 25, 2019.