KKR offer effectively splits John Laing in two

The UK-based infrastructure investor and developer will be split into a development company and an asset company should KKR’s £2bn offer be accepted.

KKR’s offer to buy the John Laing Group has the full support of the target company’s board as well as that of KKR and UK-based infrastructure investment firm Equitix, which is also involved in the deal, a source told Infrastructure Investor.

The offer price of £4.03 ($5.70; €4.66) – which represents a 27 percent premium to John Laing share’s closing price of 318 pence on 5 May, the day before talks of a sale were confirmed – values the company at roughly £2 billion. The transaction is expected to complete in late Q3 or early Q4, the source said, provided 75 percent of John Laing shareholders approve the offer when it is put to a formal vote within the next two months.

If approved, KKR will acquire 100 percent of the John Laing Group, referred to as the DevCo in the restructuring agreement, while its existing portfolio of 32 assets will be transferred to a vehicle owned 50/50 by KKR and Equitix, the so-called AssetCo. John Laing will continue to manage those assets. Any new investments will be owned by the DevCo, the source explained.

KKR has said it will support John Laing’s management team. “We are excited by the opportunity to support the talented team at John Laing to provide capital, a global platform and operational expertise to enable John Laing to accelerate its strategy,” KKR’s co-head of European infrastructure, Tara Davies, said in a statement filed with the London Stock Exchange.

“The John Laing business and team will become an important part of KKR’s diversified core infrastructure strategy, a long-term, low cost of capital, investment strategy which is open-ended with no exit requirement and substantial long-term capital to support the growth in John Laing’s portfolio over time,” according to the statement.

KKR is making the acquisition through its open-ended Diversified Core Infrastructure Fund. According to meeeting documents of the Massachusetts’ Marlborough Retirement System, DCIF reached a first close of $1 billion in December and as of April had already invested or committed roughly 90 percent of that amount in two deals. Focusing on core infrastructure in developed markets, the fund is targeting net IRR of between 7 and 9 percent and cash yield between 4 and 6 percent.

The fund was expected to reach a second close on an additional $1 billion by 31 March, according to the documents. LPs who commit at least $10 million by 30 June, will be considered founding investors and therefore subject to a 0.6 percent annual management fee based on NAV and no incentive fee for the first six years. This compares to an annual management fee of 0.85 percent and an incentive fee of 5 percent of cash yield for non-founding investors.

In addition to growing John Laing’s portfolio, KKR will look to expand the sectors in which John Laing has invested in traditionally – transportation and social infrastructure – to include energy transition and digital infrastructure.

According to another source, KKR has been eyeing John Laing for the past four years and had previously submitted at least two unsuccessful bids for the company. The source indicated John Laing had been trading below its net asset value and was handicapped as a listed company, making it hard to raise capital or to pursue larger projects.

John Laing will continue investing in the mid-market space, but with the backing of KKR it will be able to bid for projects in the higher mid-market range, our first source said.

However, with regards to the AssetCo, it is unclear whether it will be developed further by Equitix or cease to exist once the existing assets are sold or reach their end-of-life stage.

KKR, John Laing and Equitix declined to comment beyond the official statement.

Bruno Alves and Zak Bentley contributed additional reporting.