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- Private infrastructure investment is being tested in a difficult environment.The number of infrastructure deals will fall by 18% in 2023, and global infrastructure financing will fall by 50% from its peak. $176 billion By 2022 $89 billion
- Private infrastructure investment will be critical given the high demand for updated infrastructure and the need to close the huge financing gap.
- Operational value creation becomes even more important to drive revenue
boston, March 18, 2024 /PRNewswire/ — Private investment in infrastructure is growing sustainably, with a compound annual growth rate (CAGR) of 18% from 2018 to 2023. Stable returns, low cyclicality, the ability to weather cost inflation, a frequently regulated operating environment, and high barriers to entry ensure that privately held infrastructure becomes a cutting-edge strategic asset allocation spot. Masu.
Despite the decline in deals and funding in 2023, the outlook is positive. As evidence of the upcoming recovery in infrastructure financing, limited partners (LPs) are planning to increase their commitments to the asset class. Led by pension funds and private wealth managers, LPs expect to invest even more. $600 billion By 2027.
That’s the key finding of a new report from Boston Consulting Group. Infrastructure Strategy 2024: Creating value through operational excellenceon sale today.
“There is an urgent need for new and revitalized infrastructure around the world, and private investors will play an important role,” said BCG Managing Director and Senior Partner and global leader in infrastructure investment. said Wilhelm Schmund, co-author of the book. “While this has been a challenging year, the outlook for private infrastructure investment remains strong due to continued adjustment in transaction prices and an increased need to return capital to investors in an economic environment that awaits the deployment of high levels of dry powder.” We expect it to strengthen.”
Energy, transport and digital are key investment areas
Geographically, the majority of private infrastructure investment activity in 2023 will be Europe and North America. Almost 75% of the world’s infrastructure portfolio companies are based there.
The most active areas for deals are energy and environment, transport and logistics, and digital infrastructure, with investor interest in social infrastructure also increasing.
- The total amount of private investment transactions in the energy and environment sector, which is seeing significant tailwinds from the global decarbonization agenda, was totaled. $1.1 trillion From 2018 to 2023, it accounted for almost 45% of the total value of private infrastructure transactions during this period. Most of the privately held assets in this sector are focused on renewable energy and energy services. Europe accounts for the largest share of assets, followed closely by North America.
- Private investment in the transport and logistics sector reached almost the total amount $510 billion This accounts for approximately 20% of total private infrastructure investment from 2018 to 2023. Rail, aviation and marine projects make up the bulk of the sector’s private assets.
- From 2018 to 2023, private investment in digital infrastructure totaled approximately $420 This amount represents almost 20% of all private infrastructure investment during the period. By 2023, most activities will Europe Although the focus in this area is on privately owned data center assets, the majority of assets are North America I worked in mobile data and end user services.
Infrastructure investors need to double down on operational excellence
As costs increase, the potential for returns from rising multiples and debt reduction declines, investors in infrastructure assets must adopt a sophisticated approach to generating returns. Improving portfolio company operations will become even more important to creating value.
Big funds follow a clear strategy.
- Focus on the entire investment cycle. Funds often limit their operational value creation efforts to estimating sell-side plans or devising plans that cover only the first 100 days after a deal closes. In contrast, leaders begin planning at the due diligence stage, forming clear hypotheses about how to improve operational performance throughout the ownership cycle, quantifying them, and foundationalizing their efforts.
- Evaluate all means of value creation. Even when value creation plans focus on selecting the most promising initiatives, leaders consider all potential operational levers within the value creation framework, considering the future positioning of portfolio companies. This includes both topline and bottomline levers.
- Develop performance requirements. By directing a systematic value creation framework, leaders ensure a good management team and the right capabilities. It also establishes proven governance mechanisms and fosters the necessary cultural changes. All this to create maximum value through operational improvements.
“Infrastructure investment has been tested by recent macroeconomic uncertainty, but the path to value creation is clear,” he said. alex wright, is a managing director and partner at BCG and a co-author of the report. “Clear measures for value creation are available to most portfolio companies, and having the right capabilities and a well-constructed and thoughtfully executed plan is key.”
Download the publication here:
https://www.bcg.com/publications/2024/creating-value-by-improving-operational-performance
Media contact:
Eric Gregoire
+1 617 850 3783
[email protected]
About Boston Consulting Group
Boston Consulting Group partners with leaders in business and society to tackle their most important challenges and seize their greatest opportunities. BCG was a pioneer in business strategy when he founded it in 1963. Today, we work closely with our clients to take a transformative approach aimed at benefiting all stakeholders, helping organizations grow, build sustainable competitive advantage and society. We are helping you make a positive impact.
Our diverse global team brings deep industry and functional expertise and a broad range of perspectives that question the status quo and inspire change. BCG provides solutions through cutting-edge management consulting, technology and design, corporate and digital ventures. We work in a unique collaborative model across the firm and across all levels of client organizations, driven by the goal of helping our clients grow and making the world a better place.
SOURCE Boston Consulting Group (BCG)
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