Tuesday, July 23, 2024

‘LP-driven consolidation’ quickens as General Atlantic buys Actis

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The consolidation of the infrastructure industry is gathering pace as a second major infrastructure manager in a week is acquired by a bigger and more generalist outfit. London-based Actis, which has $12.5 billion in AUM and a worldwide presence centred on emerging markets and sustainable infrastructure, is being bought by New York-based private equity firm General Atlantic. The joint platform will have $96 billion of AUM.

Financial terms for the transaction were not disclosed.

Actis will continue to be led by the company’s chairman and senior partner, Torbjorn Caesar. The Actis brand and operations will remain in place and the platform will provide a sustainable infrastructure leg to General Atlantic’s growth equity and credit offerings.

The deal follows a trend, possibly exacerbated by last year’s funding crunch, whereby LPs are less keen to commit to a wider range of GPs.

“Clearly, this whole consolidation is driven by the LPs. No question about it. They are the ones who select to work with fewer GPs,” Caesar tells Infrastructure Investor. “Obviously, in that world, we’ve been thinking how do we position ourselves so that we have a long-term sustainable future and making sure that we can grow in that environment.”

A passive financial stake was ultimately of less interest than capital with some real added value, says Caesar. Enter General Atlantic. “We wanted someone who appreciates our markets – the global south specifically – and someone with a complete buy-in to the energy transition/climate change agenda. An incredibly important part here was that we did not want to have an overlap. We did not want to team up with someone that already owns an infrastructure business.

“For me, the most important task was to set the stage for a growing platform, a strong platform, with different risk-return profiles. We are that credible, large, diverse GP that LPs will want to have as a partner and through that create the excitement to staff so you can attract and retain top talent.

The top talent are the ones that actually make the difference in the end. And they want to be in places that are ambitious, going places and have ambition. You need to be a top deal maker.”

When asked if he expects further consolidation in the market, the answer is an unhesitant: “Yes, I do.” And it is all about the LPs. “Having a partnerial relationship is not just someone flogging a product to an LP, but much deeper and that’s where our industry will go. But LPs can’t have hundreds of deep GP relationships. Therefore, they need to have GPs that cover a number of different products and risk-reward type of offerings and solutions for them.”

Counting synergies

Actis settled on General Atlantic because there was a clear overlap in thinking, says Neda Vakilian, global head of Actis’s investor solutions group. “General Atlantic sees the importance of investing into sustainable infrastructure in the same way we do, which is that it is imperative that this has to happen.”

She sees three main reasons for the transaction, namely LP synergies, portfolio company synergies and attracting and retaining the best talent.

“We want to be able to optimise the service to the LPs we know and who are valued to us, but we also want to open the door to more LPs and they [General Atlantic] are going to help us do that. That’s a very important part of this transaction,” Vakilian says.

As for portfolio company synergies, the transaction may assist with origination, she says, but getting closer to the PE side of things will help too. “GA is super active in growth equity with great relationships with hyperscalers and big global corporates looking for global energy transition solutions or digital infrastructure solutions. We’re able to provide that, so there are genuine synergies between our businesses which brings value to our LPs.”

Actis’s most recent flagship fund – Actis Energy 5 – closed oversubscribed on $4.7 billion against a $4 billion target in October 2021. The two funds launched since then – Actis Asia Climate Transition and the Actis Long Life Infrastructure Fund 2 – have yet to have a first close.

Opportunities will mainly be sought in the emerging markets space, says Vakilian, though “we don’t want to draw red lines excluding geographies”.

Being part of something bigger is obviously not meant to change Actis’s modus operandi “They [General Atlantic] understand us and they want us to double down on what we do,” Vakilian says. “It’s business as usual, but improved.”

The view from the other side

General Atlantic confidentially filed for an initial public offering in the US, according to a December report by Bloomberg, and broadening their offering with a play on infrastructure seems an obvious choice.

“The biggest pull factor was the fact that we are third or fourth-largest energy investor globally by AUM,” says Vakilian. Other factors were Actis’s position in the value-add space, the focus on sustainable infrastructure and the energy transition, she adds.

Indeed, the benefit to General Atlantic is clear to Caesar. “Forecasts are that the asset class will be three to four times its size in 10 years’ time. And then you consider which sectors are growing the fastest, it’s energy transition, and we are there; digital transformation, we are there; supply chain reallocation, we are there. And where do you have the largest opportunities and needs? Well, where 80 percent of the world’s population lives – in the global south. So we are phenomenally well positioned.”

General Atlantic, though new to infrastructure, is already committed to sustainability and its inaugural Climate growth fund, the $3.5 billion BeyondNetZero Fund I, closed in December 2022.

Highlighting the complementary capabilities of the two companies, General Atlantic’s CEO and chairman Bill Ford said in a statement: “Addressing the global paradigm shift toward sustainability requires an economic transformation and a capital investment on a massive scale. With the addition of Actis, we are taking a significant step forward to add a sustainable investment capability which positions General Atlantic to capture this opportunity set for our investors.”

Ford’s optimism mirrors that of Actis’s Caesar: “We could have had a wonderful future going forward by ourselves. This is a boost to make sure that we capture the opportunity in front of us in a much smarter and better way. There could have been other ways to do this, but I think this is the right thing to do at the right time.”

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