Dealmaking momentum is expected to continue in the new year after a banner 2021 for private equity. In our outlook for 2022, we see several themes that are expected to play a significant role in PE investments: workforce management, infrastructure, ESG, home healthcare, business travel and new technologies, like cryptocurrency. We also predict that supply chain disruptions will continue to provide PE with opportunities. See below for a sector deep-dive on infrastructure.

No discussion of 2021 would be complete without a chapter on infrastructure, which stoked debate in Washington and energized limited partners to raise commitments. On the heels of a $1 trillion legislative investment in the sector, corporates and private equity are ready to pounce on opportunities.

“When you get to that spend, every state has a department of transportation tasked with maintaining waste, water, environmental,” says Godspeed Capital founder and managing partner Douglas Lake. “[This] results in a huge opportunity for consulting construction.”

Firms are already girding for investment in infrastructure. BlackRock’s $1.67 billion capital raise for its Global Infrastructure Debt Fund was announced in June. The fund aims to offer bespoke financing for sponsors and other borrowers developing assets with sub-investment grade credit quality. That deal comes months after KKR was reported to seek $12 billion from investors for its newest infrastructure fund, a massive target given its previous raise closer to $7 billion.

Roads, water treatment and power plants generate reliable returns irrespective of market growth that could appeal to investors. Sector tailwinds remain robust.

“It’s really a huge market, almost $1 trillion annually, and when you layer on stimulus,” says Lake. “This is a strong additional tailwind for sectors we focus on at Godspeed. And frankly, we were seeing strong performance already.”

Nestle’s industrial expansion in Georgia, Delta Airlines’ renewed capital expenditure plans and Amazon’s Cincinnati transportation hub are just a few private sector projects creating backlogs for engineering and consulting firms. Add state and local governments seeing unexpected tax revenue due to demographic shifts, and construction-adjacent industries have a strong pipeline.

Broadband represents another segment where the infrastructure legislation could add a catalyst to M&A efforts. “My view of the market is it’s really fractured,” says Patriot Broadband COO Greg Ford. “In Texas alone, there’s something like 100 different [wireless internet service providers], but you drill into it and it’s one guy who built a tower on his ranch and delivers internet from microwave or direct fiber to 50-100 homes in his area.”

Private equity could fund a rollup effort in part using government subsidies, though Ford notes the scale of the operation is too small for many funds.

Patriot Broadband, itself PE-backed, operates on a franchise model rather than a buy-and-build. “And this is really our goal: to build a coherent enterprise strategy of value by connecting our markets from the enterprise level,” Ford says. “The influx of grant dollars has the trajectory to increase our growth plan.”

Now that President Biden’s American Jobs Plan is law, the sector will have access to $56 billion of federal spending to upgrade rural and aging water systems, with more capital for roads and bridges. Water treatment deals could be particularly attractive, as Clayton Dubilier & Rice’s $5.25 billion exit in Wilmington, Delaware-based Solenis in November puts a valuation comp on assets in the sector. 

Alongside traditional infrastructure plays, BlackRock’s fund will target data infrastructure as companies seek to nationalize sensitive information flows, it was reported. The emphasis on data storage real estate echoes deals like QTS Realty Trust’s recently announced $10 billion sale to Blackstone. Data storage infrastructure should prove an increasingly attractive theme for large companies in search of regional hubs.

From broadband to engineering service and data storage, private equity will have plenty of reasons to keep sharpening their pencils on infrastructure-related deals in the new year.

For more in Mergers & Acquisitions’ M&A Outlook 2022 series read: