Since the crisis we have seen a tumble in infrastructure M&A and the number of projects launched, however, Europe remains an infrastructure giant and a popular destination for future infrastructure investment. Linklaters commissioned Elite Media to produce a thought leadership report that explores
- the funds available to invest in European infrastructure and their potential economic impact;
- the types of investors shaping the market and how far they are willing to stretch their risk appetite to unlock new deals; and
- the availability of assets and projects across Europe and where the future deal pipeline might come from.
European infrastructure investment is still to reach pre-crisis levels, yet Europe remains a global infrastructure giant, offering favourable opportunities to private investors looking for assets yielding long-term, steady returns. With investor appetite growing, the conditions look right for a revival in the European infrastructure market.
A rush of new private money has entered the market in recent years, as an increasing number of institutional investors such as pension funds, insurers and sovereign wealth funds target the sector, recognising the infrastructure asset class as a good match for their long-term liabilities. Our research indicates that these investors alone will have an estimated US$1trn available for infrastructure investment in Europe over the next decade. This additional financial capacity and its ability to attract leverage is changing market dynamics, driving up prices and encouraging both governments and companies to provide investment opportunities in greenfield projects and to boost the pipeline of brownfield assets for sale.
If those opportunities are created and the available funds are actually invested into building and upgrading Europe’s infrastructure, the impact on the economy could be substantial. To find out just how substantial, we commissioned analysis firm Oxford Analytica to calculate the possible impact of this investment on the EU economy.
The findings suggest that European Union countries could see a further 1.4% improvement in their level of annual GDP over the period between 2014 and 2023.
The cumulative GDP impact of the additional spending in European economies translates into more than US$3trn by 2023, triple the total outlay on infrastructure assets of US$1trn. In terms of the wider economy, the positive effects of infrastructure investment will have a multiplier effect spanning supplier industries, such as construction and raw materials, consumer spending and increased tax revenues.
While the case for infrastructure investment is strong, however, the big question remains whether there will be enough projects and assets on the market to absorb these available funds.
In researching this report, we interviewed 40 leading infrastructure players to find out where they expect deals to come from in an environment that remains challenging – and how far they are willing to stretch their risk appetite to unlock new deals.
By and large, investors prefer the stable economies of northern European and regulated assets, such as utilities. However, with few available assets leading to high prices across northern Europe, most of the investors we spoke to are willing to consider accepting higher levels of risk in order to unlock new assets at more palatable prices in the troubled markets of southern and emerging Europe.
Governments have an opportunity to secure investment which can boost their national GDP by launching new projects, releasing assets for sale and providing a stable regulatory landscape. But while political will hangs in the balance, we are more likely to see deals flow from corporate disposals as companies seek to cash in on high prices in an effort to reduce debt or fund expansion.