II Hong Kong: Deal size not best metric for pricing

Research by First State based on 273 brownfield deals shows an average EV/EBITDA multiple of 14.5x.

Ritesh Prasad, senior investment analyst at First State Investments, sought to demystify some of the commonly held drivers of deal pricing – such as deal size and direct investor participation – in a presentation at Infrastructure Investor's Global Investment Forum in Hong Kong.

Using data from 273 brownfield assets mostly in the transportation space, but also including water, telecoms, and energy, Prasad found that source of deal, region and size of stake acquired were strong determinants of pricing, whereas size of deal and direct investor participation did not significantly influence deal value.

Based on an average EV/EBITDA multiple of 14.5x for the sample, the analyst found that North American assets tended to net a 7.3x multiple above the average, with assets sold through privatisations going for a 5x multiple on top of the average.

Deals where investors acquired a 100 percent stake in an asset tended to go for a higher multiple of 16x EV/EBITDA, while holdings smaller than 20 percent resulted in a multiple of around 11.2x.

Prasad found moderate evidence of a correlation between sector and deal multiple, with toll roads going for a high multiple of 22x while water deals sold for a an average multiple of 9.5x. But he stressed that stronger evidence backed by data is needed.

“Framing the market by deal size is too simplistic,” Prasad concluded.