Despite uncertainties in the broader economic environment, many dealmakers anticipate progress in global infrastructure transactions, supported by reduced volatility in debt markets, narrower bid-ask spreads, and pressure on fund managers to deploy or return their dry powder.

The amount of money required in both developed and emerging markets to create and renew infrastructure assets is enormous. According to the Global Infrastructure Hub, the mix of population expansion, digitalization, and the desire for net zero will result in a $500 billion shortfall between government investment and the amount required in 2024 alone, increasing to $15 trillion to $18 trillion by 2040.

“We anticipate that increased M&A activity levels will be led by the largest and most-focused infrastructure funds, which have continued to attract significant capital inflows from institutional investors,” wrote Herbert Smith Freehills in its Infrastructure – Brightening horizons report. “In parallel, commitments continue to flow into smaller, specialist funds, focused on strategies such as digital transformation and the energy transition.”

The global law firm anticipates that investors will place a greater emphasis on deal structure and downside protection. Furthermore, following a period of relatively subdued activity, investors who have been hesitant to bring assets to market in recent years will look for liquidity opportunities.

Strong management teams with a track record of creating infrastructure assets will be in high demand as investors seek exposure to the unique technologies that drive the new economy, added Herbert Smith Freehills.

Energy, Utilities, Resources

The energy, utilities, and resources sectors are expected to see increased M&A activity, according to PwC. “We continue to see significant interest from broader capital pools, directing funds to M&A and into greenfield and brownfield projects, said Michelle Grant, national deals energy, utilities, mining and industrials leader, partner, PwC Canada.

M&A volumes and values in the energy, utilities, and resources sectors rose by 1% and 26% in 2022 and 2023, respectively, according to PwC. While dealmaking declined in many other industries, EU&R remained busy.

The increase in deal values in 2023 was partly due to an increase in the number of megadeals (transactions with a value of more than $5 billion), which grew to 15 in 2023 from six in 2022. Most of these were in the oil and gas and mining sectors. Five of the 15 megadeals in 2023 were announced during the fourth quarter and accounted for almost $150 billion in deal value.

“With capital likely to flow away from assets that are not compatible with a net zero transition and toward opportunities that are, some subsectors may inevitably struggle to secure necessary financing. In these situations, companies with the strongest balance sheets will be well positioned to take advantage of potential deals and the opportunity to create value.”

Consolidation

Consolidation is a major trend as corporations attempt to increase size and scale. The boom in oil and gas industry M&A deals, highlighted by megadeals among oil and gas producers last year, is projected to pick up further in 2024 as interest rates decline, Enbridge Inc. CEO Greg Ebel said.

Exxon Mobil’s $59 billion acquisition of Pioneer Natural Resources, Chevron’s $53 billion acquisition of Hess, and Newmont’s $17 billion acquisition of Newcrest demonstrate these ambitions.

“As interest rates start to peak and perhaps come down — who knows exactly when that’s going to be — I actually think things may ramp up at that point,” Ebel recently said on Bloomberg Television. “After a couple years of tightening you see a couple years of easing, and people will be looking for those growth opportunities.”

Enbridge was also active, purchasing three utilities from Dominion Energy Inc. for $9.4 billion, making it North America’s largest natural gas provider.

“For companies or capital pools that have been waiting on the sidelines, the tailwinds for many EU&R sectors are showing signs that 2024 could be the breakout year for transformational deals,” concluded PwC’s Grant.