Good morning dealmakers, it’s Obey Martin Manayiti here with the US edition of the Wire from the New York newsroom.
This morning, we’re highlighting a pair of features that go deep into examining factors attracting dealmakers in the infrastructure and healthcare sectors.
First, the artificial intelligence boom that is channeling hundreds of billions of dollars into data center operations, AI applications and cloud support systems has also created a huge investment opportunity for PE firms to invest in infrastructure-focused deals. Private markets firms such as KKR, Apollo, Blackstone, Hamilton Lane and Morrison are investing in the construction and remodeling of buildings, power grid upgrades, fiber internet connection, cooling services and land survey.
Next, the worldwide shortage of healthcare professionals is fueling the need for more medical education. Private equity firms are leveraging M&A and organic growth strategies to build sizable platforms to meet the demand for more healthcare training.
Hyperscalers
The US has a data center space problem, with vacancy rates hovering around 1 percent in some parts of the country, Peter Udbye, a principal on Hamilton Lane’s infrastructure and real assets team, told PE Hub for a feature that looked at PE firms investing in infrastructure focused deals.
“In the US, we are seeing record-low vacancy rates for data centers in light of the strong demand for AI and cloud-based applications, with hyperscalers investing to meet demand that they have today as well as for future growth,” said Udbye, whose firm has participated in the secondaries market of deals targeting data center infrastructure.
“The physical asset itself is mission critical, essential to the customers,” he added.
PE Hub spoke to a wide range of dealmakers from KKR, Hamilton Lane, Apollo Global Management and Morgan Stanley Capital Partners, among others.
“We are seeing elevated rates of growth in the physical infrastructure,” Andrew Peisch, a partner at KKR focusing on infrastructure investments, said.
KKR recently made an additional $1.5 billion equity commitment to Global Technical Realty, a multibillion-dollar European build-to-suit data center platform that the firm helped to form in 2020 alongside industry expert Franek Sodzawiczny.
“We have learned over the past several years that betting on hard assets or critical infrastructure is a nice inflation hedge because the underlying asset value moves with inflation,” Peisch explained.
“Given the volatility that we are seeing in public markets in the last several years, I think the predictability in the visibility of the return profile in hard-asset infrastructure is especially interesting.”
Firms are also seeking to invest in data centers that are located in highly interconnected markets, versus a single asset.
The availability of sufficient power generation has emerged as a key determinant in attracting infrastructure developers, mainly because most AI-focused companies require an enormous amount of energy for their operations.
Blackstone, through its Energy Transition Partners, has been very active in picking power infrastructure deals aimed at serving data centers.
“Data center demand has created unprecedented power demand growth – in excess of 3 percent per year for the next decade,” Bilal Khan, a senior managing director at Blackstone’s private equity group, told PE Hub when his firm acquired Hill Top Energy Center from Ardian for about $1 billion. “That has created a long waitlist to procure gas turbines, and there’s only a handful of construction firms that can build this type of asset.”
Read here for more on factors drawing PE firms to data center linked infrastructure investments.
Professionalizing operations
The worldwide shortage of healthcare professionals is fueling the need for more medical education, writes our healthcare reporter John R Fischer. Private equity firms are leveraging M&A and organic growth strategies to build sizable platforms to meet the demand for more training.
“Healthcare education generally is an industry that is not very professionalized,” Pierre de Sarrau, partner at Charterhouse, told PE Hub. “So, when you have new PE buyers coming in, a lot of time and effort is spent scaling up and professionalizing operations, often by improving the content, updating digital offerings and accelerating business development by adding new campuses, schools and programs.”
To learn more about what’s driving deals in the sector, PE Hub spoke with a range of sources, including de Sarrau; Teruyuki Asaoka, managing director in the EQT Private Capital Asia team; John Bailey, managing partner and founder, and Brent Gunderson, managing director, of Knox Lane. In this story, we explore three areas that PE firms are investing in: schools, remote learning and specialization.
Demand for trained medical professionals outweighs the available supply of students and is further exacerbated by the continuous large exodus of retiring physicians. As a result, the world is projected to face an estimated shortfall of 11 million healthcare workers by 2030, particularly in low- and lower-middle-income countries, according to the World Health Organization.
PE firms see M&A as a way to expand healthcare training programs in public and private universities and medical schools across different regions and countries, increasing access for potential students.
Consumers, including physicians, are increasingly digesting information online. This trend is driving PE to invest not only in online medical education platforms but also digital tools and service providers that these businesses utilize.
“AI is affecting peoples’ information collection behavior,” said Asaoka. “Physicians are no exception. Early adapters are starting to integrate AI into their workflows.”
Also, shifts in focus among medical professionals from general practitioner work to medical specialties is incentivizing PE to target healthcare education investments in high-growth subsectors.
Increases in chronic and complex diseases are creating greater demand for specialty services. This trend, along with lower reimbursement rates and more challenging working conditions, are leading healthcare professionals and students to pursue roles in medical specialties over general practitioner care.
As a result, PE dealmakers are becoming selective on which medical specialties of healthcare education they choose to invest in. Many are targeting businesses in pockets of the market where demand is high, and there is potential to expand into adjacent markets.
“From our perspective, we think it’s about how you bring the right information to the right clinicians in the right way, both with experiential learning but also on demand,” said Gunderson from Knox Lane.
To learn more about private equity’s interest in healthcare education, check out John’s full story.
That’s it from me this morning. Craig McGlashan will bring you the Europe edition of the Wire on Wednesday, while Rafael Canton will write Wednesday’s US Wire.
Cheers,
Obey
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