Operational Improvements in Infra
Can anyone give any examples of operational improvements an Infra PE firm might do after acquiring an asset/platform?
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Its a way to operationally improve infrastructure assets. have you not been paying attention?
This is entirely riffing, I am not an infrastructure investor but have looked at some technology companies that sell into infrastructure owners to help them manage the assets. Just knowing how to put together a good tech stack with a tight budget to improve your asset utilization can add some decent long-term tailwinds. Things like video management software with various security applications, other forms of IoT for monitoring various components of the asset to ensure proper/predictive maintenance, and traveler identification tracking (for things like toll by plate, some infra owners actually sell this anonymized data to buyside firms and alternative data aggregators) all offer solid ways to create additional forms of monetization or reduce your costs.
Not an exhaustive list, as you might imagine -
i.) Optimising central functions (asset management, procurement, IT, finance etc.) via hiring more experienced / laying off less productive/meaningful staff; ii.) Outsourcing asset management, O&M, route-to-market capabilities (to the extent that it has proven to be challenging/ineffective to run it in-house); iii.) Vendor housekeeping (renegotiation of external contracts under ii.); iv.) Asset housekeeping (commissioning 3rd party assessments and executing on any and all material performance improvement topics); v.) Bolt-ons (to the extent that they are clearly strategic and accretive even in a reasonable downside case and not just "chasing yield")
Non-exhaustive again but largely fall into a few broad categories:
1) capital structure. Not really operational in the strict sense but for a lot of PPP assets with concession based revenues leverage has historically been a competitive advantage though this may be changing...
2) Cost savings - tend to be relatively harder to achieve in certain subsectors (i.e. UK PFI) but items such as lifecycle, O&M etc. However, given that revenues are often contractual it can be hard to increase those other than macroeconomic factors outside of the owners control so cost savings can be a fairly key optimisation.
3) Contract Structure/variations - more for PPP assets here and can be difficult however examples may be negotiating a variation to allow install of rooftop solar where an SPV is taking utilities risk
4) CapEx programmes - construct a new wind turbine etc. Fairly self explanatory.
5) De-risking - if you can't improve cash flows (not uncommon given revenues are relatively fixed) then you can pull on the other lever for valuation (most infra is valued via DCF) and try to reduce cash flow variability i.e. lease extensions, RPI swaps if over exposed etc.