Frenzied M&A activity reflects major trends in infrastructure

The past two years have seen a marked acceleration in M&A activity among infrastructure fund managers. In part, experts say this heightened level of activity can be attributed to the generally positive background created by the shift from public to private finance going on across Europe. 

“Governments are increasingly relying on private capital to bridge substantial infrastructure funding gaps, particularly in key areas such as energy transition, digital infrastructure expansion and social and transport projects,” says Henriette de Saint Marc, a senior consultant at Indefi, an adviser to investment managers. 

“While some governments, like Germany with its massive defence and infrastructure plan, have recently accelerated public investments to support major infrastructure initiatives, the scale of investment needed remains massive.”

Public-private partnerships and blended finance can therefore act as a crucial catalyst for growth. “By mitigating risks and providing initial funding support, these public efforts unlock private investment, helping to bridge financing gaps and accelerate the development of critical infrastructure,” de Saint Marc adds.

Jean-Pascal Asseman, global head of infrastructure at AXA Investment Managers and partner at AXA IM Prime, says: “The increase in M&A activity among infrastructure managers is primarily driven by the growing gap between essential infrastructure needs and available public financing.  

“On the one hand, the demand for investment continues to rise – driven by the need to upgrade ageing infrastructure, enable the energy transition and build new systems to support digitisation and climate resilience.”

On the other hand, “public budgets are increasingly constrained, with capital diverted to other priorities such as defence and social spending”, Asseman says. “This dynamic is creating more room – and more responsibility – for private capital to step in.”

But the favourable climate is due to more than just this shift. Two other major structural factors provide strong tailwinds: the energy transition, which is seeing a decoupling of reliance on fossil fuels in favour of renewables; and the digital infrastructure boom. According to industry experts, both represent enormous sets of opportunities.

It is notable, as de Saint Marc observes, that “certain acquisitions target sector specialisation and thematic acceleration, such as Blue Owl’s acquisition of IPI Partners, which enhances focus and scale in digital infrastructure segments such as data centres”.

She stresses how renewable energy and the broader energy transition are also key focuses to support the global push toward sustainability, particularly in Europe. “Transportation and mobility sectors, including electric-vehicle infrastructure and upgraded public-transit systems, are attracting increasing investment,” de Saint Marc says.

The overall picture, though, is more nuanced, as others report. “These growing sectors require specific technological know-how that somewhat exceed the normal, existing, financial expertise,” says Michael Ebner, managing director and head of sustainable infrastructure and renewable energy at KGAL Investment Management. 

“With acquisitions of industry experts or dedicated asset managers, the larger investment managers are acquiring this expertise, talent and track record, rather than building these capabilities in-house.”

The bigger the better

Together, these factors explain much of the merger activity among managers, such as why newcomers have entered and why existing players have sought scale in a highly competitive atmosphere. “Some deals focus on strengthening infrastructure capabilities and establishing a global platform, as seen in BlackRock’s acquisition of Global Infrastructure Partners and General Atlantic’s purchase of Actis, both aimed at scaling up and expanding geographic reach,” de Saint Marc says.

In the past five years, there has been a big increase in capital flows into infrastructure from investors, says So Yeun Lim, global head of infrastructure research at investment consultancy WTW. “Therefore, asset managers who did not have private markets or infrastructure capabilities targeted independent infrastructure managers,” she says, “as they saw infrastructure as a fast-growing asset class with strong sustainability characteristics, generating steady revenues and allowed them to provide an alternative asset class to their client base”. 

Wilhelm Schmundt, senior partner at Boston Consulting Group, agrees. “I think a lot of multi-asset managers are trying to complete their offering, establishing themselves as a comprehensive solution provider,” he says. “This means they need to offer an infrastructure proposition to their clients and investors – a one-stop-shop solution giving even more scale to already hyperscale platforms.”

Consolidation among infrastructure managers, therefore, primarily serves as a mechanism for diversification by aggregation, rather than transformation. It is also multifarious, as others point out. 

“When a manager acquires or merges with another, it is typically to complement their existing platform,” says Asseman. “This complementarity can take the form of differences in investment strategy.” For example, this could include brownfield or greenfield strategies; different risk-return profiles, such as core or value-add; sectors, such as renewables or digital infrastructure; geographies; and even structuring approaches, such as open-ended and closed-end funds, or co-investments. “This kind of strategic consolidation broadens offerings, allowing the combined platform to meet a wider range of investor objectives,” he says. 

“However, it is important to note that the underlying strategies typically remain intact – the value lies not in blending them, but in offering them in parallel under a broader umbrella.”

This is “leading to greater opportunity and competition among infrastructure managers”, Asseman says. As a result, “some firms are pursuing M&A to scale quickly, broaden their capabilities, such as secondaries, or gain access to high-growth sectors”. As he notes, this “does explain why some managers are consolidating – to position themselves as leaders in a market where scale, thematic expertise, and access to capital are increasingly critical”.

Access to capital is certainly an important driver. While infrastructure as an asset class saw an increase in assets under management (AUM), Lim notes, “there was also a bifurcation within the asset class, with more AUM being raised by a smaller group of successful managers, and many managers experiencing a prolonged fundraise period, especially the first-time managers. 

“Larger managers are trying to find an offering they can bring to their client base and…. track record and brand value would be important, which comes from retaining the team,” she adds. As such, Lim believes “cost cutting is not likely to be a significant driver” in M&A. 

For general partners being acquired, de Saint Marc thinks their motivation is often to “gain access to larger and more diversified distribution networks to improve fundraising [as well as to] secure financial backing to seed new funds and support co-investments”.

Evolution

Others, however, note that there is another, quite separate, force behind some mergers that reflects the infrastructure sector’s evolution. Major managers such as KKR and Blue Owl have combined their real estate and infrastructure divisions to create unified real asset platforms. 

As de Saint Marc points out: “Several asset managers have combined their real estate and infrastructure businesses into integrated ‘real assets’ platforms, reflecting the increasingly blurred lines between these asset classes.” 

Data centres, in particular, exemplify this overlap, exhibiting characteristics of both real estate and infrastructure. “In the US, several large funds dedicated exclusively to data centres have been launched, reflecting the surge in demand driven by cloud computing, AI, and data consumption,” de Saint Marc continues. “These data-centre investments sit at the intersection of real estate and infrastructure, often requiring specialised expertise.”

However, not everyone agrees with this viewpoint. Asseman, for example, says: “We do not necessarily subscribe to the view that the lines between real estate and infrastructure are ‘blurring’. For us, infrastructure remains clearly defined – characterised by the essentiality of services provided with, in most cases, a public service component, and high barriers to entry that are expected to provide stable yield, long-duration cash flows. 

“While some large managers are combining platforms for operational or fundraising efficiency, we remain focused on the underlying characteristics of the assets. What matters most to us is not how platforms are labelled or organised, but whether a given strategy offers clear infrastructure fundamentals and a compelling risk-adjusted return profile.”

Asseman is steadfast: “We will continue to track platform shifts, but our conviction remains anchored in a disciplined and consistent definition of infrastructure.”

Lim is also sceptical. “There is still a big distinction between infrastructure and real estate as an asset class,” she says. “In the same vein, there are some blurred lines between new sectors in infrastructure and climate private equity. 

“Some infrastructure managers are in the process of learning about new sectors or technologies, which can become part of the infrastructure asset class in due course, such as battery storage, hydrogen investments, or EV charging,” Lim says. “However, infrastructure managers will still try to focus on the way that the revenue is created and try to provide more downside protection and have their own tangible assets, even if the sector is new.”

Looking forward, are more mergers expected? “The consolidation is still going on,” says Schmundt. “In 2024, we saw an all-time peak in mergers between real asset managers. I think we’re in the midst of a continuing M&A frenzy.”

And size certainly matters today, according to Ebner: “As in many other industries, size gives more negotiation power, more balance-sheet money, more industry expertise”. But it also has its drawbacks. “It puts pressure on finding interesting deals,” he continues. “Those super-large managers are competing on the large transactions and cannot act in a mid-sized environment.”