Canada’s residential services sector caught the interest of infrastructure investors last week when two fund managers bought into companies providing heating and air conditioning rental and maintenance agreements.
Toronto-based Brookfield Infrastructure agreed to pay an enterprise value of C$4.3 billion ($3.31 billion; €2.86 billion) for publicly listed Enercare, while London-based iCON Infrastructure agreed to buy an 80 percent interest in Vista Credit Corporation for an undisclosed amount.
The deals show the definition of what’s considered an infrastructure asset continues to expand to distributed and service-type assets.
Brookfield’s take-private acquisition came through its own publicly listed vehicle, Brookfield Infrastructure Partners, and valued the Ontario-based business at C$29 per share. It expects to fund $630 million of the deal, after the assumption of debt, with institutional partners funding the balance.
Enercare provides “essential residential energy infrastructure” services to 1.6 million customers and manages a sub-metering business with 270,000 accounts, Sam Pollock, chief executive of Brookfield Infrastructure, said in the company’s Q2 earnings call last Thursday.
Around 80 percent of Enercare’s revenue is underpinned by long-term contracts that lease water heaters, heating, ventilation and air conditioner assets to home users. The contract covers maintenance of the assets.
Pollock compared Enercare to a regulated distribution business “given the similarity in approach and sales channels utilised to deliver these services”. He compared Enercare to Brookfield Infrastructure’s investments in UK gas, water and fibre internet businesses, with the exception that Enercare is unregulated.
Pollock called the HVAC rental market “under-penetrated” and said Brookfield Infrastructure has plans to form a joint venture with its US-based retail power business Vistra. “It is very under-penetrated in the United States and to the extent that we can accelerate that through this channel would be a huge home-run,” he said.
iCON’s Vista, which is based in Ottawa and has around 600,000 customers across Canada, owns and leases hot water and heating and cooling systems, along with maintenance services. Its business model is dependent on individual assets in people’s homes, while most its revenue coming from service contracts added to a customer’s utility bill – usually around C$40 a month.
The deal is iCON’s third in North America and was arranged by its six-member team based in Toronto. The firm invested through its fourth fund – iCON Infrastructure Partners IV – which closed on €1.2 billion in June 2017.