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Buy and Build is Back 

The Evolution of Buy and Build Strategies in Infrastructure and Energy Private Equity: Implications for Asset Management and Leadership  Craig Davidge & Pierre Bretin Jun 28, 2024

The landscape of private equity in infrastructure and energy has undergone significant transformation over the past decade. 

Nowhere is that more prevalent right now than in Buy and Build. 

Historically, General Partners (GPs) in these sectors pursued Buy and Build strategies with a primary focus on acquiring assets at a reasonable price, integrating them to realise synergies, and then selling them for a profit.  

This approach was largely financial in nature, emphasising cost efficiencies and scale economies.  

The Buy and Build strategies of today have evolved far beyond these traditional boundaries. The modern iteration of these directives is not just about acquiring and integrating assets; it's now about driving sustainable growth, innovation, and operational excellence across the portfolio.  

This shift has been driven by several factors, including increased competition for assets, higher valuation multiples, and a growing emphasis on sustainability and ESG considerations.

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Nathalie Viens, Managing Director, Head of Asset Management Private Infrastructure – CBRE Investment Management

"Over the past year, we’ve observed that platform creations have emerged as a highly effective Buy and Build strategy within the mid-market. 

It’s an approach predicated on maximising opportunity provided in a fiercely competitive capital deployment landscape. This is being done by establishing new platforms via investments that offer substantial growth potential. Often, these are bolstered by regulatory incentives, market transformations, or various governmental grants.

Additionally, we've witnessed a surge in deal activities centred on add-on acquisitions, a strategy employed to foster new market expansion or sector diversification. This enables mid-cap markets to enhance their footprint while mitigating the risks associated with entering new markets and developing pipelines.

In the current market scenario, Buy and Build strategies are well-suited to the mid-market due to increasing interest rates and downward pressure on asset prices.

This has resulted in a notable increase in deal-making activities throughout the year. We have seen active opportunities in sectors such as North American telecommunications, which is receiving substantial governmental grant support and remains relatively unconsolidated, offering potential for growth.  

Additionally, the renewable sector presents lucrative M&A opportunities through client and asset acquisitions via Buy and Build strategies."

The New Wave

The new wave of Buy and Build requires asset management teams to expand both in size and in skill set. Today's teams need a diverse array of talents, including deep operational expertise, digital transformation capabilities, and sustainability integration skills.

The focus has shifted from purely overseeing investments to actively enhancing their value through strategic initiatives and operational improvements. 

And, critically, for CEOs of portfolio companies, especially those without an operational background, navigating this new landscape can be challenging. Asset management teams play a crucial role in advising these leaders, helping them to understand the strategic importance of operational excellence, digital innovation, and sustainability.  

They provide the frameworks and support needed for CEOs to drive transformation within their companies, ensuring that the portfolio not only grows but thrives in today's competitive and rapidly changing environment.  

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Jon Phillips, CEO – Global Infrastructure Investors Association

“There are two drivers to my mind. One is what is currently happening in the markets as there is an increased focus towards more active rather than passive management of assets.

It’s an increasingly competitive market and to get the returns that are attractive, investors are looking to drive added value from their assets.

The second is that the world is a more complex place – and this is showing no signs of slowing with. Geopolitics, regulatory and supply chain risk, ESG and the rise of AI - all of these and more are adding to the requirements on investors deploying long term capital.

Combined, this presents some new challenges in terms of leadership skills and expertise.

Leaders will need to bring an enhanced ability to anticipate and manage stakeholder issues. Understanding the landscape in which you operate, and which your asset sits is even more fundamental. Only if you understand those stakeholder complexities can you really, in my view, develop and navigate a longer-term plan for your assets.”

New talent strategies are needed

With so much happening and opportunity available, the evolution of Buy and Build in infrastructure and energy private equity could benefit from some new approaches to asset management and leadership. As these strategies become more complex and multifaceted, the need for specialised talent and strategic guidance has never been more needed.

For GPs and their portfolio companies to succeed, they must embrace this change, investing in the right people and practices to build a sustainable future. This transition from focusing on single assets to building scalable platforms enables firms to tap into new markets, diversify revenue streams, and mitigate risks, reflecting a strategic response to the changing dynamics of global markets.  

Investing in the right people and practices to build a sustainable future means growing and developing into new ways of thinking, blending cross-sector expertise with technical and operational leadership. 

Essentials for Growing Your Team 

Cross-functional Teams: Creating cross-functional teams that include members with financial, technical, and operational backgrounds can foster a culture of collaboration and knowledge sharing. This approach breaks down silos and drives innovation. 
Continuous Learning and Development: Encouraging continuous learning and development helps team members gain a broader understanding of both financial and operational domains. Investing in training programs and partnerships with academic institutions is key. 
Strategic Hiring and Talent Management: Hiring professionals with a hybrid background or demonstrated ability to bridge financial and operational disciplines enhances the team's capability to blend these areas of expertise. 
Leveraging Technology and Data Analytics: Utilizing advanced data analytics and technology bridges the gap between financial engineering and operational leadership, enabling better decision-making and efficiency.

This new era of Buy and Build also places CEOs and executive boards lacking lived operational experience in the spotlight. Asset Management teams can effectively partner with these CEOs on growth strategies, by adopting a consultative approach, building a network of industry experts, leveraging case studies and benchmarking, and focusing on financial and strategic analysis.  

These strategies enable Asset Management teams to blend financial and operational expertise and become valuable partners to CEOs in navigating growth programmes. 

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Kittredge Zuk, Executive Director, Asset Management – IFM Investors

“We often find single infrastructure assets don’t have resources to build big add on projects independently. For example, not every airport has a team of suitable construction executives on standby to deliver a new runway or new terminal once every twenty years.

Therefore, grouping assets together into a platform helps create the scale to build that capability, and we have really focused in recent years on building out our platform investments to help efficiently unlock these opportunities while supplementing the in-company resource when and where needed.

Generally speaking, the key to “getting it right” is remembering to invest in the right management team who will be responsible for delivering against the business plan and strategy, holding them accountable, and supporting them along the way.

This includes ensuring you have the right people, including the full breadth of expertise for your contemplated project, and the right incentives aligned to the outcomes you are trying to drive.

In addition, active asset management really makes a difference – in particular, identifying opportunities where the manager can support and be additive. Our team has been spending significant time supporting management teams in identification, evaluation, scoping, negotiation, procurement, and delivery of capital project opportunities.”

Navigating the Future with Strategic Partnerships 

Adopting a Consultative Approach: Leveraging their expertise in financial analysis, market trends, and strategic planning to provide valuable insights to CEOs. This involves actively listening to CEOs' challenges and objectives and tailoring advice to meet their specific needs. 
Building a Network of Industry Experts: Compensating for a lack of direct operational experience by building a network of industry experts and advisors who can provide operational insights and guidance. 
Leveraging Case Studies and Benchmarking: Analysing case studies and benchmarking against industry peers to provide valuable lessons and insights for growth strategies. 
Focusing on Financial and Strategic Analysis: Bringing significant value to CEOs by focusing on strengths in financial and strategic analysis to identify opportunities and risks.

These Buy and Build strategies look set to continue as platform creation adds value to both the asset and return to investors.

Asset Management teams will, therefore, have to blend financial and operational expertise and become increasingly valuable partners to CEOs in helping navigate these complex growth programmes.

With so many variables at play, picking the right team has never been more important.