‘Infrastructure investments are driving transformative trends,’ said Partners Group’s Todd Bright

Infrastructure in North America is badly in need of an upgrade. For years we’ve expected a surge in private equity deals involving infrastructure, and lately we’ve been seeing some. Partners Group is one firm that’s been active, with recent deals including the acquisition of EdgeCore Digital Infrastructure, the majority stake in Budderfly and the investment in Milestone. The firm has regional headquarters in Baar-Zug, Switzerland; Denver; and Singapore.

To find out more about the firm’s strategy, we turn to Todd Bright, head of Partners Group’s Houston office and co-head of private infrastructure in the Americas. Bright joined the  firm in 2014. Previous roles included managing director of power and renewables investments at Denham Capital; vice president of structured transactions at Conectiv Energy; and director of business development at Statoil.

What’s driving private equity-backed deals in infrastructure in 2023?

More than ever, infrastructure investments are driving transformative trends in our economy, rather than being driven by them. Those trends include the electrification of sectors like transportation and industrials; decarbonization beyond the impact of renewables through energy efficiency, carbon capture, and sustainable fuels; the need for smarter and safer supply chain infrastructure; and sustainability in everything from water to data centers. The companies and entrepreneurs that Partners Group is backing are providing these essential products and services at a faster pace than government mandates could ever hope to achieve on their own.

How is the current macroeconomic backdrop affecting deals in the sector?

The current macro environment is a two-sided coin. On the one hand, debt is less available and significantly more costly, construction and operating costs are going up, and the competition for good assets is still strong, so seller reserve prices have not come down in lock step with rising interest rates. On the other hand, covid, the Russia-Ukraine war and broader geo-political tensions, the climate crisis, and supply chain constraints have heightened the focus by both the public and private sectors on energy security, resiliency, supply chain on-shoring, and sustainability. This is creating trillions of dollars of needed investment in infrastructure between now and 2030.

What is Partners Group’s investment strategy in infrastructure, and how are the firm’s recent deals emblematic of the strategy?

We focus on buying and building platforms in high-growth, next-generation infrastructure thematics. These companies have strong transformational growth potential, which we help management achieve. At the same time, these companies have classic infrastructure characteristics: essentiality of products, long-term contracts, inflation-linked revenues, and low GDP and commodity market exposure.

Budderfly, EdgeCore, and Milestone are examples of how we are putting this strategy to work. Budderfly is installing energy efficiency upgrades for customers under long-term contracts. EdgeCore is developing sustainable data centers in high-demand, capacity-constrained hyperscale markets. Milestone is addressing the growing need for trailers, chassis, and containers in e-commerce-driven logistics.

What are the growth strategies for these portfolio companies?

We will take Budderfly’s energy-as-a-service solutions to a broader commercial market beyond the Quick-Service Restaurant segment, adding behind-the-meter generation. We also will integrate its assets with cloud-based technology so that it can sell demand response products to grid operators.

EdgeCore will add to its operating portfolio by building out its pipeline of projects in key data center markets like Santa Clara, California, and Sterling, Virginia. EdgeCore designs its assets with sustainability in mind, including low emissions, power usage effectiveness, efficient water usage and dedicated solar development programs.

Milestone will grow across its trailer, chassis and container segments through expansion of its logistics network, accretive M&A and market expansion.

What are the exit opportunities for PE-backed portfolio companies in infrastructure in 2023?

There are still ample exit opportunities for growing platforms in next-generation infrastructure thematics with lots of tailwinds. One of the reasons we like platforms versus single “old infra” assets is because they offer much more optionality around not only how to create value but also how to realize that value. Single asset investments generally have more undiversified exposure to higher opex, capex and debt costs, and if those assets lack thematic tailwinds, then their buyer universe may be shrinking. We are trying to steer clear of those dynamics with our thematic platform building approach.