Outlook 2016: Time to go for a spin

Corporates have hung on to non-core assets longer than expected, but sales are finally coming.

The wave had been building for a few years already. And we're not speaking about tidal power here, which also enjoyed strong momentum this year (the UK's 320-megawatt Swansea Bay Tidal Lagoon, backed by InfraRed and Prudential, got planning consent in June). We're referring to corporate disposals – and specifically attractive opportunities to carve out infrastructure businesses from larger entities for institutional investors. 

A flurry of such deals had been expected since the financial crisis. The rationale was certainly sound: thrifty corporates would soon seek to divest non-core assets as a way to repair their balance sheets. Well, it didn't quite take off straight away. As dealmakers we spoke to explain, companies sought to stop the bleeding by cutting down on investments rather than spin off lucrative subsidiaries. Often there was also a price mismatch, because sellers were not ready for significant write-downs.

Well, that mismatch is no more. Low interest rates and greater knowledge of infrastructure mean institutional investors are ever keener to write big cheques for safe-yielding, low-risk assets. Scandinavian utility Fortum, for example, probably got what it wanted when it offloaded its Finnish and Swedish grids in December 2013 and March 2015, respectively. Buyers included far-flung institutions such as Canada's Borealis and First State Investments, which is part of Australia's Colonial First State Global Asset Management.

Meanwhile, some mid-market players have done a fine job avoiding auctions, trying to carve out businesses when sellers had no time or interest for a competitive process. InfraVia, for example, launched a Nordic electricity platform earlier this year after integrating two portfolio companies it had previously acquired on a more proprietary basis. 

So utility spin-offs may not be 2016's new thing. But other sectors could further open up. As we wrote earlier this month, European telecom companies have started to sell their towers in big batches as they seek to disengage from the infrastructure business. Some portfolios are being listed; others are privately transacted. But institutional investors are certainly circling. In the US it's about energy infrastructure: as cash-strapped MLPs struggle to raise cash, they'll likely put some pipelines on the market. Good fuel for thought for prospective buyers.