Burgeoning Small Cells Low Risk? Behind EQT’s $4.25B Crown Castle Deal
Plus: We doubt anti-ESG crusaders will make real inroads with private markets and outline portco M&A and exits from last week.
Not-so-small cells
EQT’s Active Core Infrastructure fund is set to carve out Crown Castle’s small cells solutions business at a valuation of approximately $4.25 billion. The deal is made in tandem with that of its portfolio company, Zayo (co-owned with Digital Bridge) to carve out Crown Castle’s fiber business, also at a $4.25 billion valuation.
Fiber has been a risky bet in infrastructure lately — investment in the sector wasn’t popular until the pandemic when it was dubbed the “fourth utility”. For that reason, Zayo sits in EQT’s flagship infrastructure fund (the fourth vintage), which has a moderate risk-return profile for the asset class.
Interestingly, EQT is making the small cells investment out of its Active Core Infrastructure fund, which is meant for lowest-risk infrastructure investments. Think: toll roads, airports. Typical infrastructure stuff.
But investment in small cells is very much a burgeoning area of the private infrastructure asset class. While EQT highlights the “strong foundation of long-term contracts” associated with the deal (a hallmark of a core infrastructure asset) but doesn’t specify how long or what percentage of revenue is contracted. A common complaint in digital infrastructure is that contracts in general are getting shorter.
Going again
But EQT has put burgeoning assets in its core fund before — in 2023, it invested in Radius, a digital infrastructure property manager. That investment also touched traditionally non-core assets such as data centers and, yes, small cells.
Human capital has been EQT’s main management strategy here, replacing Radius’ CEO, executive chairman, and CFO over the past two years. The firm still holds the asset.
By definition, human capital will have to be an element of the strategy with Crown Castle’s small cells, too. Given that this deal is a carve-out, core services and roles will need to be filled at the new standalone company.
Whether or not EQT intends to do more, though, is unclear. EQT declined to comment for this piece.
PE portcos also saw some full and partial exits last week, as well as some exits-to-be:
Ardian sold its 35 percent stake in LBC Tank Terminals, a hazardous liquid storage company, to Mitsui O.S.K. Lines for $1.7 billion.
PAI Partners entered into exclusive negotiations to sell its majority stake in Amplitude Surgical, France — a developer of surgical technologies for lower limb orthopedics — to Zydus, a global life sciences company. Zydus would pay €6.25 per share, an 80.6 percent premium over March 10th’s closing price, meaning the entire deal would amount to €256.8 million ($280.5 million) for the outstanding 85.6 percent stake.
Levine Leichtman Capital Partners sold Encore Fire Protection, a Rhode Island-based provider of fire protection services the GP has owned since 2021, to Permira for $1.8 billion. LLCP increased Encore Fire’s EBITDA by 9x during its stewardship via 55 add-on acquisitions.
CPP Investments offloaded 7.51 percent of its stake in 407 ETR, a toll road in Ontario, to PSP Investments for C$2.39 billion ($1.67 billion).
Piraeus Bank agreed to acquire 100 percent of Ethniki Insurance, a Greek composite insurer, from CVC for €600 million in cash.
News broke that Advent International is considering the sale of Ultra Precision Control Systems (Ultra PCS), a UK-based provider of military engineering solutions, for $1 billion. Advent acquired the asset through its $5.2 billion acquisition of Cobham in 2020. No formal sale process has been initiated.
Meanwhile, portco M&A was in full swing:
HIG-backed Rainham Industrial Services bought TEi, a bankrupt British construction services provider, for an unknown sum.
Westland Insurance, owned by Ontario Teachers Pension Plan, acquired Saskatchewan-based insurance firm Loewen Agencies. Financial terms were not disclosed.
Clario — a clinical trial technology company formed via a merger of ERT and Bioclinica in 2021 and owned by Astorg, Nordic Capital, Novo Holdings, and Cinven — entered into a definitive agreement to acquire WCG's electronic clinical outcomes assessments (eCOA) business for an undisclosed amount.
Hub International, an insurance brokerage and financial services firm owned by Hellman & Friedman, Leonard Green & Partners, and Altas Partners, acquired the Drayton Valley Insurance Agency in Alberta for an unknown sum.
Permira-backed PharmaCord and Odyssey-backed Mercalis merged to create a large biopharmaceutical solutions provider, majority-owned by Permira. Financial terms, and the merged entity’s new name, were not disclosed.
New Mountain Capital’s PerkinElmer, an analytical services and solutions provider for the healthcare sector that the GP acquired via carve-out in 2022 — bought Project Farma, a biomanufacturing consultancy. Financial terms were not disclosed.
Francisco Partners-backed Quorum Software, an energy software company, acquired ZDScada, a provider of supervisory control and data acquisition systems for the oil and gas industry, for an unknown sum.
Perch Energy, a community solar servicer backed by Nuveen and Arborview Capital, and the community solar subsidiary of Arcadia, a utility data and energy solutions platform owned by Magnetar, Macquarie, JP Morgan Asset Management, and BoxGroup, merged. Financial terms were not disclosed, but Arcadia will be the majority owner of the new venture.
Hellman & Friedman’s Enverus, another energy data company, acquired Pearl Street Technologies, a developer of software solutions provider for grids. Financial terms were not disclosed.
Unwanted and unpopular
Perhaps some of you caught last week’s deep-dive on how Article 8 and 9 funds under the European Union’s Sustainable Finance Disclosure Regulation would likely be the first private funds on the target list for litigation from anti-DEI crusaders.
What has already happened in public markets is bad. I’ve never spoken to a financier, left or right, who has been in favor of the backlash DEI and ESG are getting from red state regulators. (If you are one, reach out… I’m curious). Most seem to agree that it is a derailment of fiduciary duty to not be able to consider risks for your portfolio — risks like climate change, workforce diversity, and biodiversity loss — because they’re politically unsavory.
No path to victory
How the anti-ESG crowd will tackle private markets is hard to predict due to the illiquidity of the asset class. In my opinion, there is no way for the right to make meaningful anti-ESG progress in private markets as they did with public markets.
What’s an LP to do? Force a GP to sell assets before they’re ready? Sell their stakes on the secondaries market for a steep discount? Either way, there’s no way to back out of an ESG-conscious fund without a serious breach of fiduciary duty, making the entire argument that ESG forgoes returns (a claim researchers have not yet reached a consensus on) defunct.
Will anti-ESG rhetoric be a nuisance for managers? Absolutely. Will it impact returns? If enough portfolio companies are heckled, then yes.
But will it rework the private markets system entirely? I don’t think so. ESG-focused GPs will continue to fundraise. LPs who can commit, will commit. They’ll continue to make socially-conscious investments.
But not without a headache.
See you next week!