Energy & Infrastructure Insight - Issue 3

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5 SECTORAL IMPACT In assessing the impact of the pandemic on the infrastructure market, the key question is what impact the pandemic, the government-enforced lockdowns and the change in consumer habits (e.g., the general sentiment to continue working from home) has had on the revenues in the various infrastructure sub-sectors. On the one extreme, revenues in the airport sector have suffered significantly from the restrictions on travel and— even as borders have opened up—the continued limited business travel and far below normal level of holiday travel. The effect of this is starting to be seen in financial reporting (e.g., with Gatwick reporting EBITDA for H1 2020 of £3.2 million, less than 2 percent of its reported EBITDA for H1 2019). A similar story is being felt among other transport assets that are reliant on business and holiday travel (e.g., Eurotunnel has forecast a year-over-year fall in EBITDA of 37.5 percent for 2020). By contrast, the crisis has (broadly speaking) had limited impact on revenues for operating assets in the utilities, water, waste, power and telecom sectors. Indeed, in some sectors (e.g., fiber) the pandemic has added weight to the proposition that these asset classes should be treated as core infrastructure (given the resilience of cashflows through the current economic crisis), with a consequential positive impact on valuations and level of interest. Other asset classes (such as oil storage) have benefited from other macroeconomic factors (e.g., the low oil price), which again has driven demand and has had a positive impact on valuations. DEAL ACTIVITY Clearly, sectors where there have been an adverse revenue impact as a result of the pandemic have seen a significant drop off in deal activity (generally those, such as airports, that are more GDP correlated). Any seller looking to market a stake in these assets in this market will likely struggle to find a purchaser willing to value on the basis of pre-COVID EBITDA levels (particularly where, in the case of airports, it is not clear when the pre-COVID level of airport passenger traffic, and consequent revenues, will return). A number of high profile airport transactions that were earmarked to be signed/announced during 2020 have therefore been pushed back for the foreseeable future. Meanwhile, deal activity in sectors where revenues have not been so heavily impacted by the crisis have, after an initial pause, continued to be relatively buoyant compared to the wider M&A market. During the crisis, a number of high profile transactions have been announced, including: • KKR's acquisition of Viridor (a U.K. waste management business) for an enterprise value of £4.2 billion; • the sale by Macquarie of 75.1 percent of Viesgo (a Spanish electricity distribution business) to EDP; and • KKR's investment in FiberCop (an Italian fiber-to-the-home business alongside TIM) for an enterprise value of €7.7 billion. • This level of activity has been driven by a number of factors, including: • the continued high level of available equity and debt capital (indeed, a number of funds have successfully closed further fundraising during the course of this year); • the view that the infrastructure sector is generally a robust non-cyclical sector to invest in (as further demonstrated by performance in these sectors during the crisis); and • the view that investment into infrastructure (particularly, green energy and fiber) is going to be a key focus of government stimulus programs over the coming years. European Infrastructure Market Update: What Impact Has the Pandemic Had on the M&A Sector? The various sub-sectors within the European infrastructure market have suffered from markedly different fortunes during the COVID-19 crisis and this has, to some extent, affected M&A activity. In this article, we explore the extent to which the COVID-19 crisis has affected the level of M&A activity and the impact of the crisis on deal terms.

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