Transaction activity in the infrastructure remains healthy, with 289 deals worth an aggregate USD75 billion, a slight drop in the number of deals and combined deal value for a second successive quarter.
Preqin says this drop is due to the high levels of activity seen in the first half of the year; 318 deals were concluded in Q2 for a total of USD99 billion, while Q1 was a record quarter with 437 deals financed for an all-time high USD103 billion.
Nonetheless, deal activity remains on par, or higher, than most quarters seen in the past four years despite concerns over valuations, and thus 2016 remains on track to be a record-breaking year for the industry.
The geographical dispersion of infrastructure assets sought by fund managers is indicative of the diversification that the asset class provides for investment portfolios. Despite the largest number of deals occurring in North America in Q3 (96), the region saw the lowest aggregate deal value (USD15 billion), whereas in Asia 66 deals were concluded for a combined USD21 billion.
Europe remains an attractive area for investment within the infrastructure industry with 86 projects acquired for USD18 billion.
However, in contrast to other areas of the private capital industry, assets outside these three principal regions attracted substantial investment – 38 transactions took place for a combined USD21 billion, including the largest deal of the quarter, the AUD 9.7 billion financing for the Port of Melbourne.
Just 16 per cent of global infrastructure transactions were concluded for greenfield sites, down from 39 per cent in Q2, while 43 per cent of deals were at the secondary stage. The proportion of financings for brownfield sites significantly increased in Q3 to reach 41 per cent, rising from a fifth of all transactions in Q2, and 5 per cent in Q1.
The proportion of infrastructure deals larger than USD1 billion is set to increase in 2016, accounting for 15 per cent of all deals, rising one percentage point from 2015. However, 45 per cent of all infrastructure deals are worth less than USD100 million, with 32 per cent of financings concluded for USD100 million to USD499 million.
Renewable energy assets continue to account for the largest proportion (40 per cent) of all infrastructure transactions in 2016. Financings for transport projects represent 26 per cent of deals, while social projects and utilities assets each account for 9 per cent of all transactions respectively.
Two of the three largest deals announced were for natural resources pipelines in Brazil and Spain respectively, while transport projects represent four of the ten largest deals. No transactions in North America were in the top ten, although three of the top 10 acquired assets were in South America.
“Following a record-breaking opening quarter of 2016, the number and aggregate value of infrastructure financings declined for a second consecutive quarter in Q3; however, industry assets still attracted high levels of capital and deal activity through the years is likely to be at an all-time high,” says Tom Carr (pictured), head of real asset products at Preqin. “Competition between fund managers remains intense and with the majority of investors planning to ramp up their direct investment participation, the landscape does not look like easing in the near future.
“The nature of the infrastructure industry inherently opens itself up to less developed economic markets, and it is clear that fund managers are now looking to invest in regions outside of North America and Europe. As emerging markets countries look to improve and expand their existing infrastructure systems, fund managers will be looking at these opportunities, which may be less prized compared to blue chip assets in more developed countries.”
