Infrastructure investors need to do a better job of conducting “political due diligence” to ensure that their public-to-private transactions have a “political path to victory”, a Carlyle principal told investors gathered at the 2009 Dow Jones Infrastructure Summit in New York.
Flaherty, who was the chief of staff at the US Department of Transportation before joining Carlyle’s infrastructure team, said he’s “stunned” at investors’ inability to gauge the political will to bring transactions to successful close.
“We [as a market] have not been doing a good job of political due diligence and charting a political path to victory,” he said.
He pointed to the failed attempt to lease the Pennsylvania Turnpike – a deal which fell through because the state’s legislature declined to vote on a $12.8 billion lease proposal – as an example of this.
“We [Carlyle] were asked number of times to join that and we just did not see a political path to victory,” Flaherty said.
He was optimistic, though, that the industry is up to the task of conducting political due diligence. He likened counting votes in a legislature in support of a deal to making sure that the transaction has debt in place or any number of other due diligence tasks that investors undertake in the course of a transaction.
Flaherty also urged investors “to create genuine partnerships” by proposing deals that avoid large upfront payments and instead focus on executing shorter leases and more profit sharing in order to get-buy in from stakeholders.
“That’s what we’ve been doing at Carlyle in our infrastructure fund,” Flaherty said.