What buyers and investors look for: infrastructure

The UK infrastructure industry experienced a slowdown in M&A activity in 2024, as a challenging climate of high inflation and higher interest rates put pressure on the M&A landscape. Rising debt costs and lack of dry powder are hindering buyers’ ability to meet valuation expectations. Comparing the periods of Q1-Q3 in 2023 and 2024, the overall M&A activity declined by 17% and 12% in value and volume, respectively. 

Significantly, renewable/energy transition M&A activity remains the most active within the subsectors, accounting for 47% of the deal volume and 31% of the deal value from Q1-Q3 of 2024. This represents a 16% increase in volume relative to the previous period. Despite adverse macro conditions, the strong appetite for renewable assets shows companies and investors are keen to achieve their decarbonisation targets. In this subsector, buyers are targeting strategic transactions that offer both operational or ready-to-build assets and development pipelines. This creates opportunities for growth-phase developers and mid-market infrastructure businesses seeking capital. 

What are the key value drivers for your infrastructure business?

When raising capital or divesting part or all of your asset or business, it’s important to address the valuation drivers to demonstrate a strong position to buyers and investors. Should you have a business with a low-risk profile (core infrastructure) or a higher risk with accompanying adjusted returns such as energy developers (core plus), understanding these drivers is crucial.

Stable long-term cashflows

Whether your buyers or investors have a core or core plus investment requirement, there continues to be demand for the “trifecta”, which provides comfort on stable long-term cash flows. These are:

• Offtake: stable income, whether from regulated services or provided under long-term offtake contracts with creditworthy counterparties. Vendors or businesses raising capital need to be clear on the length and robustness of these revenue streams.
• Inputs: they need to ensure that the key inputs (eg power) to their business are secured under similar long-term contracts.
• Technology: any critical technology must demonstrate strong efficacy with a long project lifespan or well-understood replacement costs.

When buyers or investors are looking at core plus or a development stage opportunity, they are keen to see ancillary revenue streams that provide multiple routes to market. This is evident in the Battery Energy Storage Systems (BESS) market, where investors’ interest is shifting towards co-location, with generation assets such as solar, onshore wind or renewable gas-fired generators built on the same site. This allows buyers or investors to optimise returns by selling energy from a generation asset into the energy grid at optimal prices/times of the day. Recent transactions show that buyers or investors are prepared to pay a premium for access to these multiple routes to market. 

Defendable industry

Investors continue to seek high-barrier opportunities. Traditional core infrastructure is asset-intensive, requiring significant CAPEX investment to compete, while some core plus investment may be asset-light. Demonstrating the defendable nature of the business or asset, whether contractual or through the stickiness of the customer base, assures investors or buyers that the business is protected and an attractive investment opportunity.

How our deal services team can help support your infrastructure business

Considered planning and strategic positioning are essential to maximise the value, mitigate the risk of disruption to your business or value erosion, and ensure the long-term success of the transaction.

As a full-service firm, we guide clients through the entire sale, fundraising or acquisition lifecycle – helping them prepare the necessary information and maximise value throughout the process.

For more information on how we can help you enhance and protect value, please see our  Your exit journey: enhancing and protecting value guide.

If you would like to discuss your options, please contact Terence Amako.