‘We only scratched the surface,’ Partners Group’s Schwartz said about reinvesting in USIC

'We see the opportunity is equal, if not greater, for our next hold,' Joel Schwartz said.

Partners Group last week announced a partial exit from United States Infrastructure Corporation (USIC) and a reinvestment in the utility provider with Kohlberg & Company, citing vast opportunities within the space.

PE Hub caught up with Joel Schwartz, co-head of Partners Group’s private equity services, who said about the initial investment: “We feel like we only scratched the surface.”

Partners Group, headquartered in Baar-Zug, Switzerland, acquired USIC, based in Indianapolis, in 2017. USIC is focused on outsourced “utility locate” services, which involve locating, identifying and marking sub-surface elements, such as pipes and fiber-optic cables. The company serves six utility markets: cable, telecom, electric, gas, water and sewer. USIC currently serves over 1,300 customers in the US and Canada. It has a workforce of 9,000 technicians who perform 80 million “locates” each year, according to the company.

Factors that attracted the Swiss PE firm to invest in USIC five years ago are still alive and well, prompting the decision to reinvest on a 50-50 joint ownership with New York-based Kohlberg.

“We call it an extension of ownership,” Schwartz said, adding that after a five-year hold period, “we have hit the value creation thesis that we were targeting, and there is still a ton of runway to go. We received a lot of interest from outside, [from] other sponsors and other investors.”

He continued, “It’s a sale by our currently invested clients, followed by a reinvestment of some of those clients alongside the new investor.”

In its first leg of investment, Partners Group grew EBITDA by 77 percent.

Joel Schwartz, Partners Group

Schwartz said he is optimistic the strong revenue trend will continue in the second leg. “We see the opportunity is equal, if not greater, for our next hold. That is really at the crux of why we are excited to continue our ownership because we do see similar growth opportunities, and the tailwinds are probably even stronger from a macro level today than they were five years ago.”

The new transaction comes at a moment when there’s a push to upgrade US infrastructure. The Bipartisan Infrastructure Law allocates billions of dollars to infrastructure projects.

On the internet front, fiber connections are set to grow for home and business services. 5G internet services are likely going to open another avenue for growth that was not present in 2017, Schwartz said.

USIC is expecting to grow in three dimensions: technological development, especially when embarking on critical infrastructure; enhancing capacity of the sales department; and growing the utility services business.

USIC will also focus on investing in environmental sustainability, increasing  quality and safety standards and tapping into energy transition in the electricity landscape, among other themes.

“We have identified a number of technology tools and solutions that we think can make their jobs better, faster, more efficient and, most importantly, safe for our employees,” Schwartz said.

He also heaped praise on the management team for the booming business and the prospects that lie ahead. Schwartz said USIC will weather the tight macroeconomic environment, coupled with rising interest rates that have sent shivers among other sectors. “We have watched over very long cycles,” he said, adding, “it’s been a very resilient sector.”

For utility companies, Schwartz said outsourcing services to USIC can provide some reprieve in terms of costs since the company can tackle multiple requests from different customers in one outreach. “It makes a lot of sense for the utilities to use a player like this who can serve multiple utilities on a much more affordable basis.

“As we get our network denser, and let’s say we have three or four utilities as our customers, we can roll one truck with a technician in a much more efficient basis than having four or five utilities all sending technicians and trucks,” he said.

What lies ahead for USIC? “Our view is the exit opportunities will present themselves,” he said, adding that the current focus is building a resilient business.

Editor’s note: A source misused a turn of phrase in an earlier version of the story. The correct expression is “extension of ownership.”