1 – Earlier in August, CHS launched an initiative to focus on infrastructure investments. What precipitated this move and which areas within infrastructure appeal to the firm?
Well, we’ve already established a long and successful track record with our management teams and companies that serve infrastructure-related projects and markets. It’s very simple—we believe that this experience, coupled with our proprietary resources and contacts in this sector, will allow us to generate superior returns for our limited partners…We see a sustained upturn in both private and public infrastructure spending on projects across the U.S. in the petrochemical, emergency response and remediation, highway, institutional and transportation sectors… We were able to validate our investment thesis through extensive third-party research and ongoing dialogue with industry experts, like Gov. Schwarzenegger.
2 – Why has infrastructure investing started to take off among private equity investors?
Good question. It seems to me that private equity firms define “infrastructure” quite differently. We are not interested in assets being shed by municipalities or governments or what might be referred to as privatizations. We are very interested in acquiring companies that manufacture or distribute products or provide a value-added service to public and private infrastructure projects and related end-use markets.
3 – You’ve already made a number of investments in the space throughout the years. What are some key takeaways from your previous experience in the niche?
These businesses can be cyclical and it’s important that whatever capital structure we put in place can withstand the inevitable downturn. For example at Penhall Company [a concrete cutting and demolition company acquired in July], we placed $175 million of second lien “144a for life” bonds–a very patient capital structure that will allow us to purchase lots of new equipment, expand our geographic base and pursue add-on acquisitions as they arise. And best of all, no SarBox compliance required.
4 – Are there different timelines and return expectations when investing in infrastructure as opposed to the more traditional buyout space?
Not for us. Our investment strategy is unchanged: we seek control equity investments in companies where, in partnership with management, we can accelerate EBITDA growth through internal investment, geographic expansion, new product introductions and add-on acquisitions.
5 – How has your track record been in infrastructure?
As our LPs know, we have generated top-quartile results in our infrastructure sector investments, which include companies such as Woods Equipment (a manufacturer of attachments for construction and other heavy equipment), Utiliserve (a distributor of electrical distribution equipment), United Central Industrial Supply (a distributor of supplies for coal mines), Baker Tanks (an industrial tank rental business) and American Reprographics Company (a digital and analog blueprint reproduction business serving the commercial construction industry).