The land of opportunity

What impact has covid-19 had on the North American infrastructure market?

Mark Voccola: Different sub-sectors have experienced varying levels of impact due to covid-19. Obviously, the transportation industry has been the most severely affected by global lockdown, with people travelling less by road and travelling a great deal less by air. At the other end of the spectrum, however, some sectors have displayed real resilience. Renewables and telecoms infrastructure both come to mind. There continues to be growing demand for green energy, which is fuelling the growth of solar and wind infrastructure in the US. And the major mobile providers are projected to spend tens of billions of dollars a year going forward. That also presents a tremendous market opportunity. These are critical assets that are needed to support our economy and will be vital to any recovery. So, I think we will see significant ongoing demand for renewables, telecoms and eventually also transportation infrastructure, regardless of the pandemic.

What about the impact of covid on your ability to do deals?

Stefano Mion: Deals are still getting done. The market is still active on both the equity and debt side, but that primarily concerns deals that were already underway before lockdown began. A lot of the diligence on those transactions had already been executed. We are still not seeing many deals that have gone from start to finish in this environment. There are real challenges conducting processes through to completion.

Could the US presidential election arguably be an even bigger disrupter?

MV: The infrastructure space is all about investment in long-term assets that go well beyond any single election cycle or even multiple cycles. There is vast demand for new infrastructure regardless of the election outcome later this year, and regardless of the election outcome in four years’ time or eight years’ time.

As a European-bred manager, what have your experiences been since launching in the US four years ago? And do you believe the firm’s European heritage brings with it any advantages?

SM: When we started out in the US four years ago, our aim was to become a single, global team, integrating the culture and expertise of our European business, which had been launched 11 years earlier, alongside the expertise of local people with track records on the ground, such as Mark. So far, that has proved very successful.

MV: In terms of advantages, I would say that our long history in Europe has provided us with a lot of relationships with industrial partners and, from time to time, those partners have assets in the Americas that for one reason or another are no longer core to them. In those situations, we have found that we are often their first port of call, having been in the market so long. It is a differentiating angle to be able to source transactions in the Americas but from European ownership.

How have competition levels changed over the four years that you have been active in the US?

SM: The market has always been competitive, and it remains competitive. I think that is even truer in the US than it is in Europe. Obviously, the big infrastructure players are raising larger and larger funds. However, we focus predominantly on the mid-market and that space tends to be somewhat less crowded. It isn’t an area where we have seen many other new entrants from Europe and it remains fairly stable in terms of competition.

What about limited partner appetite for North American infrastructure? Who is investing and is it changing?

MV: We are seeing strong appetite for North American infrastructure from LPs globally – out of Europe, out of the Americas and out of Asia. It is an attractive and growing asset class.

Where do you see the most interesting investment opportunities right now?

MV: We take a diversified approach across sector, geography and the life cycle of investments when it comes to portfolio construction. Today, there are a great number of renewables opportunities in the market, of course; but that said, there are a number of telecoms opportunities as well. Overall, it is an extremely active market with many opportunities across the spectrum.

SM: On the energy front, the big driver is the energy transition. The energy market in the US is starting to shift from coal and nuclear towards cleaner energy sources and everyone knows that at some point nuclear and coal plants will need to be decommissioned, for economic reasons as much as anything. Gas, however, continues to play an important role in the story – everything from gas generation to gas storage is of high interest to us. We are also keen to look at storage solutions that complete the picture forrenewables. For example, we recently announced a deal to install batteries in Canada alongside Enel X. That whole area is now an integral part of the energy transition.

MV: In addition to storage and gas assets, there are some interesting electricity transmission opportunities associated with the energy transition. That is another area we are paying close attention to.

And what about the telecoms sector? What is driving opportunities there?

MV: That opportunity set falls into three parts: telecom towers, fibre and data centres. As mobile providers look to roll out 5G infrastructure, they will need more towers in order to get their hardware to where it needs to be. There is going to be a multi-year buildup of billions of dollars going into that market across the US, creating many opportunities on the greenfield side. That is a sector we are highly focused on, alongside data centres.

How do you approach integrating technology into your portfolio companies?

MV: A key driver behind implementing technology is efficiency gain. It is about doing more with less and, regardless of the sector you are in, that is good for business. It can also be very positive for your carbon footprint. For example, we focus on using software and analytics to track the output of our renewables companies in order to make sure they are operating as efficiently as possible and, if they are not, to improve those efficiencies. We also track the carbon output from our thermal assets and transportation assets for the same reasons. It makes business sense and it makes sense in terms of environmental, social and governance issues. The two are actually one and the same. Again, with the predictive and preventative maintenance of assets, we are trying to ensure efficiency – doing more for less within our portfolios.

You recently completed your first investment in Canada. Do you expect to deploy more in the region and how does the market differ to the US?

SM: It is definitely a market where we expect to do more. Obviously, it has a strong economy and strong rule of law, so it is a geography that is attractive to investors. There is significant competition from the local pension funds; but with the deal we have just completed, we had a historic relationship with an industrial partner, which enabled us to get comfortable with our ability to add value. We believe there will be more attractive opportunities in Canada in the future.

What do you believe the future holds for North American infrastructure more generally and what role do you expect Ardian to play within that?

SM: We believe that this will continue to be a highly attractive region for mid-market infrastructure investment. There will continue to be opportunities, even in a downcycle. Meanwhile, the underlying revolutions that are taking place in everything from energy to telecoms – and even transportation, with the spread of electric vehicles – will require massive investment, and we see Ardian as being very much a part of that.

Article Source: Infrastructure Investor - October 2020