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Infrastructure deals soar to $145bn

By Lina Saigol,European M&A Correspondent

Published: October 13 2006 03:00 | Last updated: October 13 2006 03:00

The value of infrastructure deals has soared to a record $145bn (78bn) worldwide, fuelled by a glut of assets, cheap borrowing rates and investment managers' search for stable returns.

The figure is 180 per cent higher than in 2000, when, at the height of the M&A boom, the total value was $52bn, according to data from Thomson Financial.

"Infrastructure players are now looking at a much larger and broader set of investments than in the past," said Gavin MacDonald at Morgan Stanley. "Any asset with solid, reliable cash flows that can generate steady returns has become of interest."

The rise is set to continue as more toll roads, airports, privatised water companies and electricity distribution groups come on the block.

A consortium led by AIG, the US insurance group, bought London 's City Airport for 750m on Wednesday. Grupo Ferrovial of Spain acquired BAA, the UK airports operator, for $30bn in February. Abertis of Spain bought Autostrade, the Italian toll roads group, for $28bn in April.

Infrastructure assets appeal to investors because of their steady cash flows, and stable pricing. Investors are now watching the sale of Thames Water, the UK 's largest water company, which is owned by RWE of Germany. Four bidders, including the Qatar Investment Office and Alinta, an Australian energy group, arebidding for the asset, which is valued at up to 10bn.

Private equity firms have also been heavily involved in infrastructure deals. They accounted for more than 50 per cent of the total, compared with eight years ago, when they accounted for 2 per cent.

Tom Cooper, the head of European M&A at UBS, said there was an immense amount of money flowing into the sector for investment. "This is a structural change as institutions are increasing their weighting to this sector . . . Competition for assets is intensifying and values have been driven up very significantly."

Several investment banks have also capitalised on the boom in global infrastructure by launching funds. UBS, for example, teamed up with Qatar to bid for Thames and is using its Global Infrastructure fund , launched in May, to provide part of the financing for the deal.