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Infrastructure deals insights: 2021 outlook

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Infrastructure investing set to evolve

Infrastructure investment continues to demonstrate resilience in challenging economic conditions and expand beyond traditional asset classes into those exhibiting infrastructure characteristics. With low customer churn, high switching costs and less correlations to GDP, investments into the communications sectors (data centers, fiber and towers) have been most active principally because they are considered as a utility service to consumers and an essential service to businesses. 

Investments in long-standing infrastructure asset classes continue to be strong, tilting towards the core end of the infrastructure spectrum (fully regulated utilities, contracted energy assets) with an increasing focus on sustainability. Investment activity in transport infrastructure -- led by ports and rail -- has slowed. Meanwhile, public-private partnerships continue to lag expectations with minimal activity in 2020.

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Challenges and opportunities for deals in 2021

PwC's Deals Sector Leader John Potter discusses the trends driving deals and outlook for 2021.

PwC's Deals Sector Leader John Potter discusses the trends driving deals and outlook for 2021.  Explore national deals trends.

Infrastructure investing outlook

As we look toward 2021, the infrastructure investing outlook is bright. With unprecedented levels of committed capital, an expanding landscape of sectors demonstrating infrastructure characteristics and flexible capital to deploy, we expect US infrastructure investing to reach new highs in both volume and value.

Communications assets will continue to garner increasing interest. Fully contracted energy assets and small-cap regulated utilities will continue to come to market as infrastructure managers look to harvest investments in early funds and strategic investors divest assets to further focus on their core businesses. 

The outlook for transport is less clear. With uncertainty surrounding economic activity, travel and commuting behaviors, how and where transport patterns will evolve is not clear, and that lack of clarity will likely dampen transaction volumes. 

2021 may finally usher in a rise of public-private partnerships in the US as state and local governments continue to grapple with the daunting challenge of reviving economic activity and address the fiscal realities of COVID-19.  Public-private collaboration may result in new P3 asset classes, which can transact more quickly than the more traditional transport and social sectors. These may include government registries (motor vehicle, title offices, etc.) as well as universities monetizing parking and utility systems.

Lastly, we expect to see more structured transactions in which infrastructure sponsors provide liquidity to strategic investors through innovative structures aimed at satisfying both investors’ objectives with respect to rights, returns and risk sharing.

“Investors want more—It may be infrastructure, but is it also an essential service to businesses?”

Rob McCeney, US Capital Projects & Infrastructure Deals Leader

Key deal drivers

Communications infrastructure resiliency and demand for clean and green

Remote working and learning supports communications infrastructure as a resilient investment class.

Communications assets are proving to be mission-critical in the wake of an ever-growing demand for connectivity. This sector has largely been de-risked, which opens growing opportunities across the risk-return spectrum driven by numerous factors including operational complexities, growth opportunities, and technology adoption with assets demonstrating infrastructure characteristics. The opportunities will likely continue to grow as consumers and governments view connectivity as a utility and businesses lean on all things digital as a competitive advantage.

Elements of the new virtual and reconfigured business model -- as well as reduced commuting and air travel -- are expected to persist. Diminished fuel demands, falling costs for solar and wind, and a heightened priority on green have contributed to an accelerated shift away from traditional oil & gas infrastructure. An incoming Federal administration that is climate focused will likely only further advance clean energy infrastructure opportunities.

Will COVID-19 spur P3 activity?

As governments call to stimulate economies and reduce debt, Public Private Partnerships may answer.

For state and local governments looking to stimulate economies and reduce debt, Public Private Partnerships (P3s) may become a more attractive option and a powerful lever. In the near-term, shovel-ready projects create jobs and vitalize supply chains; brownfield P3s can plug budget deficits and reduce debt. Turning to P3s can jump-start an infrastructure investment class in the US that has largely failed to achieve success at scale. Doing so can also lead to a longer-term structural budgetary solution through robust asset recycling programs. Indeed, not all P3s have been successful; however, leveraging the lessons learned from failed or poorly executed P3s, public officials have a mix of approaches available to them. 

Infrastructure fund commitments set to increase

Greater acceptance of the investment class by investors and lower volatility will likely serve to drive increased limited partner allocations.

A combination of drivers will attract increasing levels of capital to the infrastructure sector including: a redefinition by investors of what attributes satisfy their infrastructure mandates, an increase of those assets in the market, the growing acceptance of infrastructure as an asset class, and LPs’ desire for reduced volatility. This increase in committed capital will likely also increase the number of general infrastructure funds with diverse return profiles as well as specialty funds focused on subsectors. Broader investment activity may also improve return profiles, investment horizons and innovative structures to meet investors’ increasingly complex risk-return requirements.

Contact us

Rob McCeney

Rob McCeney

Partner, Energy & Infrastructure Deals, PwC US

Darin Siders

Darin Siders

Partner, Capital Projects & Infrastructure, Tax Accounting, PwC US

Robert Chwalik

Robert Chwalik

Operations Partner, Private Equity Value Creation, PwC US

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