Hermes, CPPIB to Buy UK Ports Stake

Published Apr 1, 2015 12:24 PM by The Maritime Executive

The Canada Pension Plan Investment Board (CPPIB) and Hermes Infrastructure are to buy a 30 percent stake in Associated British Ports for about 1.6 billion pounds ($2.4 billion).

Associated British Ports is Britain's leading port operator, with 21 ports in England, Scotland, and Wales. The deal will allow the Hermes-CPPIB consortium to acquire a further 3.33 percent in the company, depending upon pre-emption rights, the buyers said in a statement on Tuesday.

Infrastructure assets are attractive to institutions like pension funds because of the long-term investment opportunity and stable returns that they represent.

Hermes Infrastructure, part of British-based fund Hermes Investment Management, and CPPIB will buy the stake from GS Infrastructure Partners and Infracapital. Borealis infrastructure and Government of Singapore Investment Corp will remain shareholders.

The price values the company at a multiple of about 20 times earnings before interest, tax, depreciation, and amortization (EBITDA), based on 2014 figures and taking into account accrued earnings, said Peter Hofbauer, head of Hermes Infrastructure.

However, a source close to the seller said that, based on an enterprise value (EV) of 7.24 billion pounds, comprising equity, net debt, a swap and a pension deficit, the multiple was more than 24 times core earnings.

That is less than other recent comparable transactions - Newcastle port, Australia's biggest coal export terminal, sold last year for 27 times earnings, although the commodity-rich country has more potential for growth.

It is the second infrastructure deal this month for Hermes, which along with another Canadian pension fund has agreed to pay 585 million pounds for a 40 percent stake in the Eurostar rail link.

"The institutional investors we talk to still see infrastructure as very appealing," Hofbauer said. "It's locking in a real rate of return."

Associated British Ports had core earnings of 291.9 million pounds in 2013 and had a compound annual growth rate (CAGR) of 6 percent between 2006 and 2013, Hofbauer added.

The company is run on the landlord model, whereby it owns all the land and is the statutory authority of the business. That means it can make earnings simply from leasing the land, as well as bringing ships in and out and monitoring safety.

"In the infrastructure business, we don't yet have a port asset, and we like this landlord model," said Cressida Hogg, managing director and global head of infrastructure at CPPIB.

The deal to buy the stake is expected to close in the summer. Macquarie Capital and Deutsche Bank acted as advisers to CPPIB and Hermes.