Relevance of the infrastructure sector for investors

Why is the infrastructure sector relevant for investors?

The expansion and maintenance of infrastructure in the areas of drinking water/wastewater, gas, electricity, district heating and fibre optics has been neglected in recent decades due to tight budgets and a lack of political focus. At the same time, the demands on infrastructure are increasing, driven by climate policy regulation and technology changes in the heating, electricity and fibre optic markets. Within the European Union, the topic has therefore been focussed on via several vehicles, such as the Next Generation EU Recovery Fund and clear political objectives and targets, primarily to become climate-neutral by 2050. The result is sustainable, high levels of investment in the maintenance and expansion of infrastructure in Germany and Europe. Infrastructure expansion will therefore experience a significant growth spurt over the next 10 to 20 years.

Which segments are particularly attractive?

From a pure volume perspective, fibre optic expansion is certainly the fastest growing segment. However, there has been deregulation here in the past in order to achieve the ambitious expansion targets; this has led to a growing number of providers and thus increased price pressure. Pressure pipe rehabilitation and expansion or the district heating segment are certainly exciting - there are significant barriers to entry here due to the certificates and expertise required, and the potential for differentiation through services (planning support, real-time survey data delivery, etc.) and technology (milling robots, full-service vehicles, etc.) is also significantly higher. The road and bridge construction sector is very asset-heavy due to the need for asphalt and/or precast concrete plants close to the site.

What should investors look out for when making acquisitions in the infrastructure segment?

In addition to product and technology expertise, the service and market development expertise of the respective target should always be examined. In most cases, these allow a higher lock-in potential and more attractive price levels - even with framework agreements. Furthermore, companies with several branches should realistically examine and scrutinise the potential for cost optimisation. Often, apparent scaling potentials cannot be realised because, for example, sales and administration are geared towards the respective region and local decision-makers; in these cases, a shared service structure makes little sense and the complexity increases with each additional branch.