The private equity offer for international power generator ContourGlobal PLC (LSE:GLO), sending the shares shooting almost a third higher, provides a loud and clear reminder of the interest in infrastructure assets in the UK and around the world.
Buyer Kohlberg Kravis Roberts is splashing out over $6bn on the FTSE 250 group, including the £1.75bn cash for the equity and the rest in existing debt.
KKR in the past two years has swooped for infrastructure investor John Laing Group and waste specialist Viridor, adding to other infrastructure holdings in its massive portfolio that in Europe alone include broadband providers in the UK, Netherlands and Italsy (Hyperoptic, Open Dutch Fiber and FiberCop) and power providers is Spain and Finland (X-Elio and Caruna).
KKR, which was immortalised in the book Barbarians At The Gate after fighting to take control of RJR Nabisco in what was in 1988 the biggest takeover of an American company, last year made an astonishing 19 infrastructure investments around the world, including several in the energy and telecoms sectors.
It is far from alone in being interested in these sectors, with investments in the FTSE 350 in recent months indicating this is an area of growing popularity, with valuations of several telecoms giants in particular treading water for several years now.
BT Group PLC (LSE:BT.A) can attest to that with France’s Altice having taken a huge stake, while in the past week Vodafone Group PLC (LSE:VOD) attracted its second major investor of 2022 as e& splashed out US$4.4bn on a stake of just under 10%.
There could be more to come with the global private equity industry calculated to collectively holds just under US$1.8 trillion of ‘dry powder’ a couple of months ago, according to Preqin.
As private equity takeovers of Morrisons, Asda, Stock Spirits, Cobham and Clinigen in the past year have shown, that powder is being used to buy up plenty of consumer facing companies too, as well as defence contractors and healthcare companies.
But the interest in infrastructure comes at a time when governments are backing projects left right and centre, including roads and the electrification of transport as well as big spending on energy, bolstering wind, solar and nuclear energy to reduce reliance on hydrocarbons (whether they come from Russia or not), while corporates such as BT and Vodafone are rolling our superfast broadband and 5G mobile networks, and so on.
Downing Street has forecast £650bn worth of investment in infrastructure over the decade, outlining its own funding commitments, including £4.8bn for infrastructure and £26bn to help industry hit emissions targets.
What private equity likes about infrastructure is that although returns are less exciting, they are generally more predictable – and often linked to inflation.
What’s more, as in the case with telecoms, they can be underrated by the market, creating added spice for the dry powder merchants.
The question for small private investors is, who might be next.