Eleven years after launching its infrastructure advisory and financing business in Europe, DC Advisory, a UK-headquartered investment bank, has opened up its services across the pond. Anthony Edwards, a former MD of global infrastructure finance at CIBC World Markets, will lead its infrastructure M&A business, while Hannah Schofield, a former director of North American infrastructure debt at BlackRock, will lead its infrastructure debt advisory.
Currently, DC Advisory’s infrastructure business is limited to London, Frankfurt, Paris and Madrid, having advised on over 150 deals worth about $35 billion over the last decade. However, its clients now want more of the pie in North America.
“We have a very strong group of tier one infrastructure investors as our clientele with a focus on European markets, as those markets are more developed than those in the US. Now, those clients are looking more toward North America as a key area for growth. It is our clients who have effectively asked us to expand to North America to be able to service them with our strong technical expertise, our credit structuring and our advisory capabilities as well as being able to bring European-style financing solutions to the US,” explained Phillip Hyman, a managing director at DC Advisory.
Edwards added that this increased interest in the US from European firms can be broken down into two components: new capital inflows from American LPs and a large amount of investment opportunities due to decades of underinvestment.
While DC Advisory is making the move to service existing clientele, it isn’t writing off new clients. With the Inflation Reduction Act derisking a multitude of assets and encouraging new players to enter the infrastructure space, Hyman is optimistic that once DC Advisory has serviced its existing clients, it will have much room for growth – in the short term.
“With fibre in the UK, you saw a lot of inexperienced players enter the market early on, and you’re now seeing consolidation with the big infrastructure players,” he explained. “With today’s fundraising crunch, I’m sure this will be replicated with some of the new players entering the clean energy space in the US post-IRA.”
Many European investors are confident that with their clean energy expertise on the continent, implementing those projects in the states will be easier for them than for US-based investors, but Hyman warned against overestimation.
“The US is a very complicated place to do business in offshore wind for example – the permitting process, the environmental process, these things need local expertise, and these things were underestimated by European investors when they first started investing here in large numbers, about three or four years ago,” Edwards explained.
Hyman added: “The true insight that European operators have in developing greenfield renewable assets is the technical and engineering expertise. This is generally held by development partners and not necessarily the equity capital that funds the projects. In any event, equity is not so specifically geographically domiciled and most capital is international. It will be important for European or US ‘based’ equity investing in the US to partner with developers who have not only the engineering capabilities but also the local expertise which is different to Europe.”
Another complexity of the US system that DC Advisory sees opportunity in is bank financing. “The bulge bracket investment banks have been more successful with some of the bigger infrastructure investment firms, given the sheer size or public nature of the deals – the GIPs, the Brookfields – but at that mid-market level, infrastructure clients struggle to break down the silos that sit within existing banking institutions,” said Edwards.
“The US market is a much bigger market from a capital provision perspective,” Hyman explained. “However, European markets have a very distinct bespoke infrastructure financing market which has evolved over the last decade – where things like yield and long-term, fixed-rate debt are achievable, without being heavily contracted and operationally restrictive.”
Edwards holds that the issue with hyper-structured banking system isn’t an issue of capacity, but rather of efficiency.
And with a record-breaking influx of clean energy projects expected in the wake of the IRA, efficiency matters.