Speaker 1Hi, I'm Bruno Alves, and welcome to the Infrastructure Investor Podcast. In today's episode, I sit down with Natalie Tidman, Editor of Infrastructure Investor Deals, and Zach Bentley, America's Editor at Infrastructure Investor. We discuss the deal landscape in Europe and the US, including how the market is responding to the current volatility, what's behind plotting M&A processes, which sectors are capturing investor interest on both sides of the Atlantic. Why investors are growing cautious about investing in platforms with early stage pipelines and much more. This podcast is all about deals. For some of our listeners that may not be aware, we've launched a new product at the end of January. It's called Infrastructure Investor Deals, and as the name indicates, it's all about deals. Basically, the deals. That are done by a large chunk of our audience of fund managers and direct investors. And so I'm really happy to have Natalie, who edits that title, here with us today. And I'm going to start with you, Natalie, because you wrote quite an interesting piece where basically, and I think this was more maybe from a European M&A perspective, but you were basically saying that infrastructure deal makers kind of have bitter headaches than tariffs and the trade wars. And that there's kind of a. It's a slow pace to deal flow, but this isn't necessarily coming from the current volatility. So maybe we'll start there and just tell us a little bit what's happening and what you're
Speaker 2seeing. Yeah, absolutely. I think that's right in a nutshell. I think that sort of canvassing people in the market about what their bigger headaches are and what's keeping them up at night is not so much to do with tariffs and what's happening over in America and how that's feeding into the deal market and sure there is certainly a level of uncertainty brought by the fact that we're living in times of extreme volatility. But I think everyone's kind of got used to that volatility to a certain extent now. So it's a bit less, people are a bit less panic stricken about it, perhaps. I think just in terms of what the infrastructure community is saying, really, I think one of the biggest issues, and this is also bred from uncertainty, really, is the frustration brought about by sale processes, which have started, but then they maybe don't move a quick enough pace for whatever reason, or they get mandated on a deal on the advisory side, and then no one hears anything for, you know, for quite a while.
Speaker 1Do you have a sense, Natalie, if this is, I know the causes will be different, but in this European M&A context, the usual, you know, seller-buyer gaps, is it a bit of financing difficulties, maybe? Expensive financing? What's causing the holdups?
Speaker 2I think the story differs from case to case. There is definitely a sense in the market that when it comes to quite a high value transaction, such as, I don't know, Grain LNG, which has recently launched in the market as well, which has got a two billion equity ticket attached to it. I think with things like that, people don't really want to buy a small estate, like a property stake. They don't want to cede control over the assets, which dwindles the pool of bidders, really, if you're going into it from a solo basis. And you know, people just say, well, it's obviously going to be the usual suspects that will win it. So, like, why would I bother if I was going in with a consortia? So that's one angle, I think, and I suppose just on the sell side, it could also be that people aren't fronting as much or putting as much store on the valuations that are being
Speaker 1sought. Yeah, it struck me that one of the sources that you quoted in that piece complaining that they haven't felt like the markets had a decent run since Ukraine, which clearly is positioning this outside of the current troubles, which for sure are not going to
Speaker 2help anyone. Yeah, absolutely. I think it's kind of been one headache after another, really. And this is just the latest in a long line of hiccups.
Speaker 3And I think it's not like a lot of those headaches have actually been cleared up. It's that another headache has come and taken the headlines instead. So I think, you know, if we're looking at something like interest rates, those are still high. We've just stopped talking about high interest rates, the problems of high interest rates and deal making still exist.
Speaker 1Yeah. Well, and also they arguably stand to get worse, right? Because I understand we're still, you know, we're like you said, we're not talking about it and the volatility is grabbing other sorts of headlines, but I mean, not far in the background is the idea of higher inflation. Of a stop to this decrease in interest rates, maybe even a slight increase in some cases if needed. And that's just this really going to take headache into migraine territory, isn't it? Zach, so funnily enough, you wrote a piece which is coming at it from a different perspective. So Natalie's very much M&A, European focused. As we mentioned, the impact was there from Ukraine and so far the volatility isn't really doing much except adding to the headache. But you wrote something quite interesting. Which is more from an LP point of view and really kind of saying that platform development, which has been all the rage in renewables in particular and digital, is actually not exactly out of favor, but people really want certainty in those platform deals and they're not prepared to value them highly if there isn't that. Is that a good description of what you ended up writing?
Speaker 3Yeah, it's quite multifaceted, but I think we kind of got used to high platform development valuations peaking, especially in the renewable sector in sort of 2021, '22, where you saw quite wild EBITDA multiples. And there's been over the last few years a degree of that coming down and just a bit more realism. But I think with all the headwinds that that sector is facing at the moment, it's come down quite significantly. You know, I quoted some data from CRCIB. Some people might remember it as Conresnik Capital, the US renewables focused investment bank. For development platforms with later stage pipelines and a better track record, people are paying about 9x EBITDA, whereas for those with sort of later stage pipelines, people are paying about 5x or less EBITDA. And that's a big turnaround to what we've seen in the past. And in the renewable sector, that comes from both the threat of whatever may happen to the Inflation Reduction Act, which we continue to wait to see what happens, and also the impact of tariffs on development as well.
Speaker 1Yeah. A 5x is really low. And I think if you look at what happened with Macquarie and the halting of the sale of Corio, which was their offshore wind platform, it's quite interesting because we wrote about that I think last October, precisely because that pipeline was so early stage and we've kind of said, let's see, this is really going to test the waters. And now what you're kind of coming out with is saying, well, you know, that the market really is speaking strongly here. And you know, I think you're starting to see that. But did you have any other comments there, Zach? Did you hear any other stuff on that kind of early stage nexus that's worth mentioning?
Speaker 3Well, some other insights from CRCIB was also that a lot of equity investors have been adopting more of a preferred equity model for some investments and sort of protecting some of that downside risk. And we heard about that, I think, at the back end of last year from Stonepeak, our New York forum. And, you know, you've just seen Brookfield earlier this year close at $1 billion. That's kind of geared towards those kind of investments as well. And I think, you know, they put some money in a Regis Energy from that fund. So people are looking at how they can hedge their bets while still making plays in this
Speaker 1environment. So, Zach, I'm going to stick with you for a while because we're going from kind of European M&A to early stage development. You've just spent a couple of days at BNEF's big annual conference. It's obviously well known to a lot of our listeners and a big deal. In the clean energy world. So very curious to see what you heard there, what caught your ear. Give us the highlights. What are people talking about in terms of deals in the clean energy sector in the U.S. in particular? Yeah.
Speaker 3I mean, I would say attending the BNEF summit in New York, it's hardly like attending the Republican National Convention. So you know, what I was surprised about was the amount of mentions on the agenda of LNG, BNEF summit. I thought that was quite revealing in terms of where that sits in the spectrum these days.
Speaker 1Is it renewable now?
Speaker 3Sure. But the overarching theme was uncertainty. It's almost like the pausing of the tariffs actually lends to more uncertainty. You know, if the tariffs were introduced and they stuck, industry can find a way and some will be less fortunate. But then you have a reality that you're doing. You're dealing with kicking the can down the road for another three months kind of doesn't help anyone. But I think I wouldn't want to draw too many conclusions. I think from what the main conclusion was, was that a lot of people are taking a wait and see approach. No one's sort of drastically reallocating capital right now. They want to see how this all shakes up. But it's kind of seeing what actually happens versus what we're talking about right now.
Speaker 1Yeah. Let me pick up on a few points there, actually, and I'm going to come to you, Natalie, because You wrote about LNG, not that long ago. And it's quite interesting to see it, though not surprising, but interesting to see it pop up in what is essentially a clean energy conference. And you've been writing about it recently in the European context. What were the angles that you are picking up there and the sentiment towards, you know, LNG these days?
Speaker 2Yeah, it's a really good question because I think that it's one of those asset classes that people kind of would have shied away from and, you know, because it hasn't got the sort of like the fluffy credentials really of, you know, a renewable energy source or something that is directly linked to energy transition, but with a positive spin on it. I think the market sentiment around it has really shifted in the last few months and just what I'm hearing from people, but also having been tracking the national grid sale of its green LNG project, which is a big one in the UK, is quite interesting in that it's a big one in the UK. It's quite interesting in that it's a big one in the UK. It's quite interesting in that it's quite interesting in that it's a big one in the UK. It's quite interesting in that quite a lot of the selling points around it and what is being billed as the investability in the asset really is based around not just sustainability, but that is a strong angle in terms of LNG's part in the transition story as an essential piece of that narrative, essentially. But also it's to do with the security, energy security angle, which, as we all know, has really come to the fore. And I think it's definitely signs of a market that has less consumed with ostensibly investing in, you know, the politically correct assets, but more looking at the longer term investability of projects, actually, as, you know, not just a necessary evil, but actually an intrinsic part of the energy transition and security.
Speaker 1Was there a bit of that at the conference, Zach? Was energy security coming to the fore
Speaker 3around LNG? Yeah, I think you've got combinations of energy security and energy certainty, which, you know, kind of sound the same. But have some distinctions. And LNG benefits from exactly what it is and that you can take it to who needs it most. And it's not a fixed asset. So it kind of benefits from the tailwinds of energy security and people really just needing it now and then.
Speaker 1One thing I wanted to ask you, Zach, were people commenting in relation to what the Trump administration did with Empire Wind in New York? Was there any chatter around that, the stop work order and obviously all the uncertainty that's created? That asset class? Was it just more in general? What was the context?
Speaker 3I actually think in comparison to last year's BNEF Summit, there was remarkably little discussion on offshore wind altogether, which may say quite a bit about that part of the asset class in general. But there wasn't a great deal of talk on Empire Wind. But I think that's still just either at the back or front of everyone's minds. Now, the pausing of that project that was already under construction that had already drawn $1.5 billion of project finance, I don't think people need to have a 45-minute panel discussion to know that your project is not necessarily safe, even if you think it is.
Speaker 1Yeah. No, that's fair. Natalie, let me come back to you because I want us to try and give the listeners also a kind of broad overview of what sectors are kind of interesting from a deal flow perspective and maybe a little bit outside of the big data center, digital. Digital nexus and transition. But you'll tell me, but one of the things that I know you've been looking into is actually energy from waste. You expect some movement in that sector, don't you?
Speaker 2Yeah, I think it's one of those ones really on energy from waste where there have been quite a lot of rumblings in the market for quite some time. People were discussing at our London conference, which was last autumn, actually, and without anyone really kind of knowing what any sort of pipeline might look like, really, it has been kind of on the wish list of people for being another bucket of investment opportunity, really, for some time. And I think just speaking with people this week, really, about what they're seeing, there is quite a lot of activity and some of it is a bit codependent, I think. So just anecdotally, I'm hearing that there's a big pipeline of energy from waste assets, which is coming to market, the first of which might not excite investors massively, just because it's quite small ticket. It's only sort of you would definitely pop it in the mid-market bracket, sort of between 200 and 300 million. And it's EQT is selling its Earlsgate Energy Centre project, which is in Scotland, which has a CHP facility attached to it, essentially. But you may sort of say one swallow does not a summer make, but I'm hearing that actually that is going to pave the way for quite a few more opportunities in buyouts, so one of the owners with EQT is Brockwell Energy Limited, which is in turn owned by Pioneer Point Partners and Davidson Kempner. And so they own 50% of each of Brockwell Energy, and they own 50% of this project, which is coming to market. And so I think that once that disposal has gone through, then what I'm hearing is that that could lead to a potential disposal of Brockwell Energy as well. But also just on EQT's side. It looks as if they're looking to sell down quite a lot of the, if not all of the, two billion portfolio, which the older listener among you may recall that when EQT bought the business, it was called Covanta, and now it's called Encyclis. And then essentially the UK and Irish business of Covanta was spun out to become Encyclis, whereas it's quite confusing. Covanta's European business was rebranded as Encyclis, but Covanta still exists for the US business. And so within that portfolio, there's a wealth of opportunity for people because it's all very much the grey story, which investors are really looking at, and they're really drawn to at the moment. And so while you may think it's a bit of a flimsy hook, one small energy from waste plant, actually, there's quite a lot of room for growth and room to actually identify a proper pipeline over the coming months.
Speaker 1I think one of my favourite themes, on the deals front that I've seen, sector-wise, has been a little bit the transport resurgence. Again, Natalie, you've been looking into this. Hasn't been quite vanilla transport necessarily, though maybe there's a little bit of that also in the mix. But tell us, what have you been picking up on that front?
Speaker 2Yeah, there's definitely a vein of kind of more traditional, kind of old school transport deals in the market. That's for sure. But also, I think people are looking a bit outside the box, really, when it comes to what their definition of transport is. And there's quite a lot of what you might call transport-adjacent activity going on in the market, which is actually, it's a bit more of an innovative way of having that transport link, which is, it's definitely picked up in the last few months, but also going for more accessible assets, if you have those expertise. A couple of examples, really, have been some investments recently in the emergency aerial rescue space, which, you know, if you were a proper infrastructure purist, you might say that that wasn't quite.
Speaker 3You might be saying, rescue me.
Speaker 2Yeah. Good one, Zach. And just by way of a recap, so InfraCapital and Vespa Infrastructure Partners acquired SAF Aerogroup from Oak Tree Capital and a BP of France. But I mean, you can tell by the way they operate, especially kind of in our space. And then I think just in the space of a couple of days, then Swiss Life Asset Managers acquired Allianz, which is a very similar type of aerial services provider. And I think what was interesting about that is that, I mean, it's clearly transport, but it really does, it's a bit of an intermingling really, isn't it, in terms of there's a transport element, but it's also, you know, you could argue it's a social infrastructure crossover as well. And then something which isn't infrastructure at all, and which is like quite clearly rooted in private equity. And this sort of ties in with somebody I was speaking to earlier on in the week. He was saying that because the infrastructure projects that he's trying to track are not moving quickly enough, he's really dipping his toe into more private equity flavoured transactions. And there is that element here. But also it's just because with things like this, people can strike bilateral agreements without having to enter. Potentially lengthy, expensive auction prices, which potentially could end in failure with loads of bigger players going for the same assets. There's a lot of bilateral activity at the moment just to try and avoid investors wasting their time with auctions that don't go anywhere. And so I think that all of those themes are really connected at the moment.
Speaker 1Yeah. So a couple of notes, then maybe for us to do a bit of a recap for listeners and to wind down the discussion we've just been having. I'm going to use that. you know, tariffs probably will make inflation go up again.
Speaker 3in? I don't think we can automatically make that conclusion. I think firstly, core still struggles from the headaches that we kind of mentioned at the beginning. Even if we're not talking about high interest rates every day, they are still quite high. So there has been admittedly quite a bit of success from core funds over, say, the last six months in terms of the return to good fundraising and deals closed. But I don't think we necessarily see a move from value-add to core because of what we see going on right now. I also think sort of the way LPs are allocating, they're not weighing up a core fund against a value-add fund. They're investing as to what their requirements are returns-wise. One quarter doesn't make a story, but KKR's results were out this morning and there hasn't been a substantial growth in the fundraising for their core fund over the last three months that would necessarily indicate a big shift. But I wouldn't draw too much from one fund in one quarter.
Speaker 1Yeah. Oh, that's fair. We're still waiting and seeing. And I think the other thing, I'll ask you this now, Natalie, is it fair to say then that, and at least on the European side, we're seeing these sort of, you know, a little bit of a plodding pace to parts of the M&A market and processes, you know, dragging on and being costly on account of that. And so segments of the market, perhaps the mid-market more, are, you know, getting a little bit creative and looking, you know, for where they can get bilateral deal flow, even if this isn't exactly, you know, infrastructure in a pure sense of the word. Is that a fair way to summarize what you've been seeing?
Speaker 2Yeah, I think that really is a good summary of what people are saying, really, and what they're looking at. I think if people were waiting for kind of the perfect pipeline of infrastructure deals, kind of as the dictionary definition of infrastructure, you'd probably be waiting an awfully long time. And also, don't forget, we're fast approaching the summer months, really, where if really if processes haven't launched kind of in the next couple of weeks, then you're looking at a post-summer launch, I think. So there's definitely a hunger among market participants to build up some momentum. And if that means, you know, broadening your definition of what an infrastructure asset might be, for example, the TCR ground handling business, which is clearly transport adjacent, but, you know, you might question whether it really fits. the bill on that front. But I think there is a bit of a kind of, without sounding dramatic, a bit of a do or die mentality now, because people just really have to get moving on things, you know, or risk potentially months of inactivity. And if that translates as going for slightly quirky assets, you might say, then I think people are much more willing to do that.
Speaker 1I think that's a great note to end on. Zach, Natalie, thank you very much for your insights. And see you soon. Thanks, Bruno. Thanks for having me. Thank you for having me.
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