The cost of buying infrastructure assets has grown to record levels and fewer deals are taking place, research has shown.
More than one-third of global transactions completed so far in 2014 have been worth more than $500 million, according to data monitor Preqin. This has helped bring the average infrastructure deal size to $523 million for the year.
“These increases in valuations have led to concerns that some infrastructure sectors are becoming overpriced,” said Andrew Moylan, Preqin. This number is almost 12% higher than the previous record of $468 million, the average deal size in 2012, and 22.5% higher than the average transaction last year.
“The growth in demand for infrastructure, along with the much-improved availability of debt, has resulted in greater competition for assets, and for established brownfield assets in particular,” said Andrew Moylan, head of real assets products at Preqin.
This competition, along with the falling number of deals, has pushed prices higher. Between 2011 and the end of 2013, the number of deals completed annually fell by 5%. If the current half year number of deals—367—only doubles, the sector will see an 11% drop in transactions in 2014.
This could lead to more price inflation as fund managers hold a record $100 billion in uncalled capital, Preqin estimated, and many institutional investors are planning to grow their allocations to infrastructure.
“These increases in valuations have led to concerns that some infrastructure sectors are becoming overpriced, and those firms looking to put capital to work will have to work very hard to find value in the current market,” Moylan concluded.
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