US Infrastructure deals insights: 2H 2019

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Executive summary

Total deal value and volume increased in the second half of 2019 (2H19) relative to both the first half of 2019 (1H19) and the second half of 2018 (2H18). Average deal size was also up in 2H19 vs.1H19 and 2H18, as investors continue to look for new opportunities to deploy their capital within the crowded US infrastructure market. Although there was no material US federal infrastructure legislation in 2019, we expect infrastructure to remain a talking point throughout the 2020 election cycle. We continue to see increased activity in certain sectors, such as data centers, midstream assets, and water.

High level trends and highlights 2H19

  • The US infrastructure sector maintained its recent strong growth in 2H19, as total deal value and volume increased significantly compared to both 1H19 and 2H18.
  • Average deal size for 2H19 was up vs. 1H19 and 2H18 by 26% and 98%, respectively, helping drive the increase in total deal value.
  • Public-private-partnership (P3) projects continue to represent a limited portion of the overall US infrastructure market, accounting for none of the top ten deals in 2019.

  • In 2019, we saw a continuation of 2018’s robust fundraising momentum and we expect this trend to continue in 2020.
  • We have also seen increased combined industry and location strategies, with many financial and strategic investors focusing on the US infrastructure space following divestitures in other locations.
  • We see a variety of funds continuing to join the US infrastructure market, including newly created funds, existing North American funds with new mandates, and global funds looking to establish a North American presence.
  • Additionally, we expect funds to continue to redefine sector and/or geography focus (i.e., expanding the mandate definition).

  • As attractive US infrastructure investments continue to demand attention and drive high valuations, investors look for value creation opportunities to optimize business operations and drive higher returns.
  • In the midstream sector, for example, value creation opportunities exist in many areas, often requiring identification/sizing during due diligence, and planning/execution post-signing/closing. These include:
    • Analyzing capital spending to identify value leakage and refine processes/controls to ensure spending is in line with expectations and to improve positioning in competitive bid situations.
    • Leveraging operational data to enable integrated solutions that provide real-time, reliable information to improve safety, performance, and innovation, thereby resulting in:
      • Reduced reportable incidents,
      • Efficient deployment of Maintenance, Repair, and Overhaul (MRO) crews,
      • Transforming from a run-to-failure approach to a predictive-maintenance program, and
      • Improved customer engagement.
    • Improving finance effectiveness to enhance management’s financial reporting and external reporting in order to accelerate decision-making and facilitate timely access to capital markets when opportunities arise.
  • PwC’s Private Equity Value Creation model works with equity sponsors and management teams from due diligence through exit to ensure value creation opportunities are identified, prioritized, and realized by leveraging PwC’s subject matter experts across all infrastructure sectors.

  • As US federal, state, and local governments continue to look for opportunities to upgrade their infrastructure assets, P3s are likely to play a critical role and recent US accounting changes could significantly impact such P3 investments.
  • When ASC 853 for service concessions was introduced in 2014, many failed to realize it could apply to P3s. With the new ASC 606 revenue standard applying to all public and private companies, current and potential P3 concessionaires need to understand this new standard and its broader application. Read PwC’s recent blog to learn more.


Highlights of deal activity


Sub-sector analysis

  • In 2H19, Renewables deal value and volume increased 33% and 32%, respectively, vs. 1H19 and represented 54% of total 2H19 volume. Power and Midstream transactions represented 64% of total deal value in 2H19, with value increasing by 43% and volume decreasing by 11%, respectively, in 2H19 compared to 1H19.
  • Transportation deal volume and value were down 37% and 7%, respectively, vs. 1H19. Meanwhile, other sub-sectors (including Environmental, Telecommunications, and Social infrastructure projects) have continued to gain traction in the US market, with Environmental deal value almost tripling in 2H19 vs. 1H19, led by various water deals. In the telecom sector, data center deals helped drive a 36% increase in 2H19 telecom deal value relative to 1H19.

US Infrastructure outlook

Recent legislative developments

  • We saw numerous state infrastructure bills passed during 2019, including a bill allowing New York City to utilize design-build contracts for certain public works projects, a bill in Alabama imposing increased fuel excise taxes, and a bill in Indiana related to the taxation of data centers, among others.
  • At the federal level, we expect infrastructure to continue to be a talking point within the 2020 election cycle, although we do not anticipate any material infrastructure legislation being introduced this year, including an extension of the FAST Act, an Obama-era law which authorized $305 billion of highway spending through 2020.
  • The tax extenders package recently signed into law did include certain relevant tax incentives, such as an extension of the biodiesel fuel tax credit.

P3 Focus    

  • Certain P3 transactions did not gain the expected traction in 2019, causing some continued frustration within the US P3 opportunity set. Nonetheless, investors kept a high level of interest in potential P3 opportunities during 2019 and we expect to see investors continue to seek opportunities to participate in the privatization of such assets in 2020.

Telecom/Transportation

  • Investors showed increased interest in the US Data Center/Telecom and Transportation/Logistics sub-sectors in 2019.
  • Port and terminal facility opportunities continued to keep the interest of potential investors and we expect additional assets in this sub-sector to come to market in 2020, with increased interest from private equity and infrastructure funds.
  • Airport privatization remains a focus area for potential investors. However, as evidenced by the recent decision to end the procurement process for the privatization of Lambert International Airport in St. Louis, as well as the complexities experienced with respect to the development of Denver’s Great Hall project, the market for privatization opportunities in the airport sector continues to be relatively limited.

Midstream

  • Midstream assets continue to attract financial investors seeking to build an infrastructure strategy focused primarily on (i) gathering and processing facilities; (ii) oil, gas, and natural gas liquid (NGL) pipelines; (iii) oil and gas storage facilities; and (iv) liquefied natural gas (LNG).
  • This is the broadest segment in the value chain and many players maintain a presence in this segment because it reflects a natural monopoly in activities which typically feature long-term, stable cash flows. Going forward, we expect interest to be more focused on long-term contracted assets closer to the wellhead.

About the data

The information presented in this report is an analysis of deals in the infrastructure sector, focusing on renewables, power, transport, environment, telecommunications, and social infrastructure deals. Deal information was sourced from the Inframation Deals database and includes deals focused on infrastructure projects and portfolios that achieved deal status of “Financial Close” between January 1, 2019 and December 31, 2019.

The data includes acquisitions, partial sales, and financing for greenfield and brownfield transactions. Certain adjustments have been made to the information to exclude transactions such as refinancings, general financing facilities, equity commitments, and transactions that did not have a reported value on Inframation, as of January 14, 2020.

Percentages and values are rounded to the nearest whole number, which may result in minor differences when summing totals.

Contact us

Rob McCeney

Partner, Energy & Infrastructure Deals, PwC US

Daryl Walcroft

Principal, Capital Projects & Infrastructure Leader, PwC US

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