Deal focus: PEP wins first secure assets fund deal

One of the driving factors behind Pacific Equity Partners (PEP) launching a secure assets fund was knowledge of deals foregone. The Australian GP looked at numerous companies that offered infrastructure-style yield plus additional upside through active management, but the returns didn’t fit the buyout fund model. Rival bidders, with lower capital costs, had a built-in advantage.

That advantage appears to have been removed, based on the competition PEP overcame to close in on the fund’s debut deal. Two electricity distributors – Energy Queensland and New Zealand’s Vector – and Calvin Capital, a specialist funder of electricity metering programs, were all said to be in the running for Origin Energy’s Acumen smart meters unit. PEP’s Secure Assets Fund, working with Landis+Gyr, won out with a A$267 million ($202 million) bid.

“There is a long-term underwritten contract with relatively well-known parameters – it’s a much lower risk investment than traditional private equity where you are pushing for a net return of 20%,” says a source close to the transaction. “Then there are options that go beyond the guaranteed minimum return if you perform strongly and attract more volume.”

Landis+Gyr is contributing up to A$75 million to the deal in the form of cash and its metering services subsidiary intelliHUB. This business was established in 2015 in preparation of the mass-market rollout of smart meters in Australia. IntelliHUB has pre-existing service agreements with multiple energy retailers in Australia and New Zealand.

Acumen, which was established by Origin eight years ago, currently manages about 170,000 smart meters nationwide. Origin has entered into a long-term metering contract with Acumen to deploy and manage smart meters for its electricity customers. Meanwhile, intelliHub has agreed a five-year supply deal with Landis+Gyr that will see 800,000 smart meters deployed in Australia and New Zealand. 

The combined entity – to be known as intelliHUB – has raised an additional A$500 million to support Australia’s smart meter rollout. In addition to replacing analogue meters with smart devices in homes and businesses, demand will be driven by growing adoption of solar panels and other decentralized energy sources. 

Landis+Gyr believes intelliHub could account for a significant proportion of the estimated eight million smart meters to be deployed across New South Wales, Queensland, South Australia, and the Australian Capital Territory. Cameron Blanks, a managing director at PEP, described it as a “once in a generation technology refresh.”

Some of the overall A$767 million commitment is being provided by banks, but PEP is still writing a sizeable equity check. Some of this will be rolled into the first close of the A$750 million secure assets fund. The rest will be co-investment. “In this case, the co-investment is several multiples more than the fund investment,” the source adds.   

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• Topics
• Australasia
• Infrastructure
• Infrastructure
• Buyouts
• Australia
• energy
• Pacific Equity Partners