THE RACE FOR BALFOUR BEATTY INVESTMENTS PORTFOLIO

Following the announcement of John Laing Infrastructure Fund move to acquire Balfour Beatty Investments, investment arm of Balfour Beatty, for a reported £1bn, and the rejection by the target company, it is worth exploring the possibility of other actors coming into play. Is this an opportunity for Pension Funds to acquire a profitable portfolio of operational projects (which appears to be attractively diverse), or is it the opportunity for large investment funds to acquire a ready-made portfolio for an infrafund?

Regardless of who is likely to be interested in BBI, the reality is that Balfour Beatty plc has already rejected a takeover bid by competitors Carillion plc, and it is now fighting John Laing’s approach for the investment arm. However, it is well known in the industry that the troubled company has already issued several profit warnings and the fact that they are willing to negotiate, gives strong signals that they are willing to sale for the right price. In fact, the latest valuation of BBI appears to be directly related to an earlier bid by John Laing Infrastructure Fund for a significantly lower figure – as reported by The Telegraph on the 1 December 2014.

Balfour Beatty Investments was valued at £766 million as at December 2013, for 61 projects. The later 63 project portfolio was valued at £1,051 million on 27 August 2014, through a change in the valuation methodology; an overall increase of 46% from the original position. It is worth highlighting that the valuation now includes Balfour Beatty Infrastructure Partners.

The portfolio includes (as at 27 August 2014):

• 13 Road projects (UK)
• 5 Hospital projects (UK)
• 8 School projects (UK)
• 11 Other projects (UK)
• 21 Military Housing Projects (US)
• 2 Hospital Projects (US)
• 3 Other projects (US)

Of the total number of projects, 13 were still under construction and 3 projects were at the preferred bidder stage.

Perhaps a strategic alliance between Carillion plc and a fund is not off the cards, with an aim to split the business following a full takeover. In any case, the investor hoping to make a bid for the diverse portfolio will require considering operational efficiencies within the individual projects in order to maximise returns on the hefty investment.

If you are interested in undertaking technical due diligence of Balfour Beatty Investment’s portfolio for a potential bid, please contact me as we may be able to support your transaction. We may also be able to assist you if you are disposing or acquiring a portfolio of projects for your fund.