Record levels of M&A activity have continued to fuel phenomenal levels of demand for infrastructure finance, according to a report from Standard & Poor’s Ratings Services.
Record levels of M&A activity have continued to fuel phenomenal levels of demand for infrastructure finance, according to a report from Standard & Poor’s Ratings Services. The value of total infrastructure-related deals worldwide has already reached USD322bn for 2007, just short of the USD342bn spent globally in 2006.
Standard & Poor’s believes this appetite for infrastructure assets is likely to continue into 2008, despite the recent tightening in the credit markets. While the value of M&A may not remain at the dizzying heights witnessed over the past two years, as long as the underlying characteristics of infrastructure remain constant – with stable revenues, provision of an essential and long-term public service, a strong competitive position, and relatively strong yield returns – it is unlikely that the attraction of infrastructure assets will slacken.
‘Looking at recent M&A activity across the infrastructure sector, some interesting trends are clearly emerging,’ says Michael Wilkins, head of infrastructure finance ratings at Standard & Poor’s. ‘Notably, financial sponsors such as infrastructure funds, private equity players and pension funds now account for more than 20 per cent of global infrastructure deals, up from just 6 per cent in 1998.’
‘Furthermore, Europe has established itself as a key region for investors, accounting for more than half of all infrastructure-related M&A activity since 2006 and reaching USD150bn in value so far this year. Remarkably, more than USD56bn of this has been spent on Russian infrastructure acquisitions alone, a dramatic increase from the USD3.9bn invested in 2006.’
Investors have continued to demonstrate their interest in infrastructure assets, and M&A activity remains significant. However, Standard & Poor’s highlights the negative impact this market behaviour is having on credit quality across the asset class, and argues that European utilities in particular will continue to feel the pressure from increased leverage and aggressive financial profiles.
