Can Big Infrastructure Exits Come from Lower Multiples?

Average EV/EBITDA Multiple for Infrastructure Transactions

Average EV/EBITDA multiples have increased for large-cap infrastructure transactions over the past 10 years, partially driven by the growing number of large/mega-cap funds in tight competition for the same deals. Over the past 5-10 years, large-cap deals have transacted at an average premium of ~30% to small-to-mid cap (SMID) transactions. Meanwhile, small- and middle-market deals have maintained more attractive pricing, creating opportunities for outperformance in the transaction space. Lower entry pricing allows for growth initiatives, such as developing new projects or completing bolt-on acquisitions, to actually ‘move the needle’ in the middle market and create significant value.?

Optionality at exit is another attractive characteristic of the SMID market, as a wider audience of potential buyers can take action on small- and medium-sized businesses. This buyer pool includes a vast number of other middle-market funds, strategic buyers and a growing number of large- and mega-cap funds, which must deploy ever-growing sums of capital. In contrast, at the upper end of the market, the path to exit can be more limited, as there are fewer funds or companies with sufficient capital to execute a large- or mega-cap acquisition, which can increase the reliance on the public markets for exiting via an IPO.

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Definitions

Infrastructure – An investment strategy that invests in physical systems involved in the distribution of people, goods, and resources.

Mega/Large Infrastructure: Any infrastructure fund larger than a certain fund size that depends on the vintage year.

SMID Infrastructure – Any infrastructure fund smaller than a certain fund size, dependent on vintage year.?