3i Infrastructure has agreed to invest about €69 million in Valorem, a French wind developer and power producer, through a subordinated debt instrument.
The transaction will land the UK-listed firm a 28.5 percent stake in the company, with further capital to be invested later on in developing the business. The remaining equity will be retained by founder Jean-Yves Grandidier and the existing management team.
The investment is somewhat atypical for 3i Infrastructure, which has since its 2007 inception largely focused on infrastructure assets rather than companies.
The firm hinted at a change of tack, however, when revising its return target in May 2015 to an 8 to 10 percent range, rather than solely aiming for the top end of this bracket. The move was justified by increased competition in the large-cap core space, it said at the time.
The following July, 3i Infrastructure teamed up with AMP Capital to acquire ESVAGT, a Nordic-focused provider of services to the offshore oil and gas industry, a market both firms described as defined by “high barriers to entry” and revenue streams secured through long-term contracts.
In January 2016, Richard Laing replaced Peter Sedgwick as chief executive with a mandate to push 3i Infrastructure higher up the risk curve with an emphasis on greenfield and core-plus assets. The previous October, the firm had hired a new partner, chief financial officer and strategy director to broaden and deepen its originating capabilities.
Stephane Grandguillaume, a partner at 3i Infrastructure, told Infrastructure Investor that Valorem was first and foremost operating as an independent power producer, with electricity from the wind farms it owns typically contracted out for 15-year terms. That alone would allow its investment in the business to generate high-single digit returns, he said.
On top of this, Grandguillaume explained, 3i Infrastructure planned to help Valorem boost its development pipeline, with a 400MW minimum of total capacity targeted within the coming three years. Combined with consolidation opportunities in what he described as a fragmented market, this would allow the investment to fall within 3i Infrastructure's expected return window of 10 percent to 12 percent, he argued.
The firm’s investment in Valorem follows its successful share issue in early June, through which it collected £385 million ($509 million; €458 million) in “the largest fundraise in the UK listed infrastructure space since 3i Infrastructure’s IPO in 2007,” a spokesperson said then.
Having recovered from a small dip in the wake of the UK referendum, 3i Infrastructure’s share price is up nearly 8 percent since early June.