KBS - Utilties Infrastructure Services - Market Insight

M&A ACTIVITY CONTINUES TO RISE WITHIN UK UTILITIES INFRASTRUCTURE

The utilities sector is undergoing a period of remarkable change, driven by a surge in mergers and acquisitions (M&A) activity that is reshaping the industry landscape.

Key trends driving M&A in the sector include the consolidation of small and mid-sized firms, diversification of services into multi-utility operations, and a strong focus on renewable energy. Cross-border deals are also on the rise, as companies expand into high-growth regions such as Europe, North America, and emerging markets in Asia and Africa. + CONSOLIDATION OF SMALL AND MID-SIZED FIRMS The sector has seen a trend of consolidation, where larger utility contractors and infrastructure service providers acquire smaller, specialized firms. This helps them expand service capabilities, enter new geographic markets, or gain expertise in niche areas like renewable energy or telecom infrastructure. + DIVERSIFICATION OF SERVICES Companies traditionally focused on one type of utility (e.g., electricity or water) are diversifying into multi-utility services through acquisitions. This trend reflects the demand for integrated solutions where companies manage multiple types of utility infrastructure (electricity, water, gas, telecom) under one contract. + OVERSEAS APPETITE IN A HIGH-GROWTH UK MARKET Cross-border M&A activity has increased, particularly as firms seek to expand into new markets with different regulatory frameworks. The UK government’s regulatory framework encourages investment in utilities infrastructure, which is further driving M&A activity as companies seek to comply with evolving regulations and standards These acquisitions help firms diversify geographically and tap into high-growth markets with rising infrastructure needs. + PRIVATE EQUITY INVOLVEMENT Private equity firms have been very active in the sector, often buying up smaller companies, consolidating them, and then selling them to larger strategic buyers or other investment firms. This has helped drive M&A in both the infrastructure services and renewable energy sub-sectors.

The UK utilities infrastructure sector is expected to see continued M&A activity as companies seek to adapt to changing market dynamics, regulatory pressures, and the growing emphasis on sustainability. Investors are likely to focus on innovative technologies and infrastructure improvements that can drive efficiency and customer satisfaction.

CURRENT LANDSCAPE

The motives, synergies, and strategic interests of acquirers, investment buyers, and private equity in the UK utilities infrastructure sector reflect a complex interplay of market dynamics, regulatory requirements, and the pressing need for innovation and sustainability. These factors collectively shape the landscape of M&A activity in the sector, driving companies to pursue strategic transactions that enhance their competitive positioning and operational effectiveness.

Various players have distinct motives and strategic interests when pursuing mergers and acquisitions.

ACQUIRER MOTIVATIONS

Market Expansion: Many companies seek to expand their market presence by acquiring complementary providers of utilities infrastructure services, allowing them to access new client bases and certain geographic regions.

Diversification: Within the utilities space, we are seeing acquirers often look to diversify their portfolios to mitigate risks associated with reliance on a single sector or service line.

Regulatory Compliance: With increasing regulatory pressures for sustainability and efficiency, companies are seeking targets that can help them meet compliance requirements more effectively.

Cost Synergies: Firms are looking to acquisitons for the significant cost savings presented through economies of scale, streamlined operations, and shared resources with synergistic operators, helping to enhance profitability.

Access to Technology: Acquirers are increasingly looking for providers that offer innovative technologies, especially in digital transformation, smart grids, and renewable energy solutions.

ACQUISITION SYNERGIES

Operational Synergies: Combining operations can lead to enhanced efficiency, reduced duplication of resources, and improved service delivery. This is particularly important in with the utilities and infrastructure sector, where service reliability is critical.

Financial Synergies: The right acquisition can improve access to capital, optimise the complex cost structures that infrastructure companies typically navigate, and enhance financial performance through better cash flow management.

Acquirers are looking to acquisitons for the significant cost savings presented through economies of scale, streamlined operations , and shared resources

Knowledge and Expertise: Merging with or acquiring firms with specialised expertise can accelerate innovation in a rapidly moving sector, and enhance the acquirer’s capabilities in new operational practices.

Client Base Expansion: Acquisitions typically lead to access to broader client bases, whether they be commercial or governmental contracts.

STRATEGIC INTERESTS OF PRIVATE EQUITY AND INVESTMENT BUYERS

Stable Returns: Investment buyers and private equity firms are attracted to utilities infrastructure operators due to their stable cash flows and predictable returns, which are appealing in uncertain economic climates.

Value Creation: Private equity firms often pursue operational improvements and strategic repositioning of acquired companies to create value before exiting through resale or public listings.

Long-term Growth Potential: Many investment buyers are focused on sectors with growth potential, particularly those technology-driven solutions within the utilities sector.

Leveraged Buyouts: Within the sector, we are seeing private equity houses are often using leveraged buyouts to acquire companies, taking advantage of debt financing to enhance returns on equity.

ESG Considerations: There’s a growing emphasis on environmental, social, and governance criteria among investors, leading to an interest in utilities infrastructure providers that align with sustainable practices and renewable energy goals.

$6 trillion The value of the global utilities sector stood at over in 2022, contributing to 6% of global GDP

M&A STATISTICS

PwC’s 2023 Global M&A trends report showed that in total, the UK saw 3,628 deals across 2023 – £46bn worth of UK deals completed in H2 2023 compared to £42bn in H1, bringing the total deal value for the year to £88bn. Energy, Utilities and Resources sectors recorded £18.2bn of M&A activity in 2023 , the highest amount for any individual industry in the UK. In a recent PwC survey, 46% of energy leaders reported they’re planning for acquisition or divestment in the next 12-18 months, to help achieve strategic goals and accelerate investment.

UK Energy, Utilities and Resources M&A was valued at

£18.2bn

in 2023 - the largest of any individual industry

“46% OF ENERGY LEADERS REPORTED THEY’RE PLANNING FOR ACQUISITION OR DIVESTMENT IN THE NEXT 12-18 MONTHS”

SECTOR DEAL ACTIVITY

AFECO ACQUIRED BY UNITED LIVING GROUP United Living Group (ULG), a leading independent infrastructure, construction and property services company has acquired AFECO, a cleantech innovation company that specialises in engineering services and solutions focused on the water, marine and energy sectors. KBS DEAL INFRASTRUCTURE SAAS COMPANY REACHES AGREEMENT WITH CALISEN Calisen has agreed to acquire Advizzo, a company specialising in the provision of a software as a service platform for energy and water smart meter data, as it continues its mission to deliver Smarter Energy for All. SIMONA GROUP ACQUIRES PEAK PIPE SYSTEMS Simona Group acquired Peak Pipe Systems, one of the UK’s leading manufacturers of high quality polyethylene pipe systems. PEAK has been supplying the UK infrastructure market for more than 50 years, with a particular emphasis on electric and water utility sectors, as well as aquaculture.

INFRASTRUCTURE GATEWAY ACQUIRED BY SOUTH STAFFORDSHIRE PLC

KBS DEAL

South Staffordshire PLC, backed by Arjun Infrastructure Partners, acquired Infrastructure Gateway Limited (IGL), an accredited utility connections company serving housebuilders throughout central England.

OCU GROUP ACQUIRES RJ MCLEOD Stockport-based energy transition and utilities infrastructure services company, OCU Group, has acquired Scottish engineering business, RJ McLeod, for an undisclosed sum. McLeod is based out of Glasgow and Dingwall and has a more than seven-decade history of delivering complex engineering solutions to a wide range of clients in Scotland.

IETG ACQUIRED BY MARKET-LEADING TIC GROUP SOCOTEC UK, a market leader in testing, inspection, and certification (TIC) services for the construction and infrastructure sectors, acquired IETG, specialists in flow level, temperature, and water quality monitoring.

BUSINESS GROWTH FUND INVESTS IN SKEWB Business Growth Fund announces a £6.25 million investment in Skewb, a company that provides consulting and digital transformation, workforce management and energy efficiency services and products for the water and energy utilities sector.

SELECT SURVEYS ACQUIRED BY LSBUD GROUP LSBUD (LinesearchbeforeUdig) Group, a provider of utility asset maps, has acquired Select Surveys, a Kent-based utility and land surveying company. KBS DEAL

MATRIX NETWORKS ACQUIRED BY MACQUARIE Macquarie acquired Matrix Networks Group, a leading provider of specialist utility infrastructure in the UK. It operates as an independent utility network operator, holding the licences, expertise and accreditation to design, construct and own last-mile infrastructure.

LONDON DRAINAGE ACQUIRED BY YFM EQUITY PARTNERS YFM Equity Partners, a UK Private Equity firm, has acquired London Drainage, a specialist in the provision of commercial drainage solutions, servicing clients across London and the surrounding areas. KBS DEAL

KEY ACQUIRERS & INVESTORS

MARKET INSIGHTS

According to the utilities industry analysis by the Global Market Model, the utilities industry is poised to experience a compound annual growth rate (CAGR) of 6.6% from 2022 to 2032. In 2022, the worldwide utilities market achieved a valuation of $6037.3 billion, contributing 6% to the overall global GDP . The UK offers expertise in sustainable infrastructure design, regulation and construction, combined with innovations that deliver a low carbon future. There are numerous domestic opportunities for potential investors in areas such as mining, construction, rail and water. These opportunities are being supported by new policies and funding. UK infrastructure is forecast to grow by 3.7% CAGR between 2020 to 2030 which is the fourth fastest in the world. (gov.uk) The UK government is launching innovative and important renewable energy schemes to meet Britain’s goal of zero carbon emissions by 2050. The move to

3.7% CAGR The UK infrastructure market is forecast to experience a from 2020 to 2030, the fourth fastest globally

developing domestic renewable and nuclear energy alternatives continues. As such, the UK will need to modernise its infrastructure and grid technology; and this offers growth opportunities for SMEs in this space.

Utility companies are looking to spend their money better, which has resulted in Tier 2 and 3 contractors that specialise in certain services being utilised to bring quality solutions to ongoing problems , as opposed to the blanket approach often found with large Tier 1 contractors. These smaller, independent companies are more cost effective and provide a better service, which has resulted in interest from large players within the market to make acquisitions to bring these resources in-house. There is a significant shift in the allocation of contracts within the utilities space taking place, with typical Tier 1 contractors losing market share to smaller independents. Tier 1 contractors have become increasingly expensive, adopting a point and shoot approach without providing effective solutions to ongoing problems. “THERE IS A CLEAR REQUIREMENT FOR THE UK’S INFRASTRUCTURE TO BE UPDATED IN ORDER TO ACHIEVE THE GOVERNMENT’S NET ZERO TARGETS” The size and scope of these Tier 1 utility contractors also hinders flexibility; they’re not nimble enough to change tact quickly when necessary. This is compounded by the shift in the type of works being completed, with efforts moving away from multi-hundred-million-pound new schemes and focusing on smaller scale projects that make existing water assets work better. The clear requirement for the UK’s infrastructure to be upgraded to achieve the governments target of Net Zero naturally results in smaller projects being undertaken throughout the country. There is also a dramatic increase in the level of investment into UK utilities infrastructure , with AMP 8 receiving record investment of £96bn, which is almost double the c£50bn invested into AMP 7. This increased investment has been highlighted as necessary in the most recent Environment Agency’s latest environmental performance report.

The combination of stable returns, essential services, regulatory support, and opportunities for growth make the UK utilities infrastructure sector an appealing target for acquirers and investors

STABLE CASH FLOWS Utilities infrastructure providers typically have predictable and stable revenue streams due to consistent demand for essential services, making them appealing for long-term investment. ESSENTIAL SERVICES The water, electricity and gas sectors that utilities infrastructure companies primarily support provide essential services, which are less sensitive to economic cycles, ensuring resilience during downturns. GOVERNMENT SUPPORT The UK government often supports investment in utilities, especially in renewable energy initiatives, aligning with broader environmental goals and providing incentives for private investment. SUSTAINED M&A ACTIVITY The sector has sustained a history of mergers and acquisitions activity, leading to established pathways for investment and exit strategies. FOCUS ON SUSTAINABILITY The increasing emphasis on sustainability and green energy makes utilities involved in these areas particularly attractive, aligning with investor preferences for ESG criteria.

REGULATORY ENVIRONMENT The UK has a robust regulatory framework that, while complex, provides a degree of certainty for investors. This can reduce perceived risks associated with investment. INFRASTRUCTURE INVESTMENT There is a growing emphasis on modernising the UK’s aging infrastructure, as well as incorporating renewable energy and smart technologies. This creates opportunities for growth and innovation. ASSET BACKING Utilities infrastructure providers often have significant tangible assets, which can provide security to investors.

MARKET CONSOLIDATION There is potential for consolidation within the sector, allowing acquirers to benefit from economies of scale and enhanced operational efficiencies.

TECHNOLOGICAL ADVANCES Innovations in technology, such as smart grids and energy storage, offer growth opportunities and efficiencies that attract investors looking for modernisation in utilities.