Efficient transportation: the vital link

29 February 2016

Transport infrastructure impacts not only the daily commute of millions of workers but living standards, productivity and economic growth as well. 

"Transport is one of the biggest issues facing city growth and efficiency" says David Roseman, Macquarie Capital’s Global Head of Infrastructure, Utilities and Renewables.

As the pace of urbanisation accelerates, assuming transport infrastructure can be delivered, it can provide for new routes, expanded capacity, and facility upgrading.

One of the biggest challenges is ensuring there is adequate master planning, government support, procurement, funding and delivery of transport capacity. 

The role of the public and private sector

Roseman says the role of government and the private sector in the provision of transport infrastructure is evolving. 

"Large infrastructure projects are, generally, not economically viable without some level of government or public sector support, at least in the construction phase," he says. 

Planning, environmental and social issues associated with the delivery of transport projects also require government conviction, policy and execution to resolve. 

“Transport is one of the biggest issues facing city growth and efficiency.”

For example, while London’s £15 billion Crossrail project - a new high frequency, high capacity railway for London and the South East - will significantly improve the city’s transport links, the size, timetable and complexity of the project necessitated government involvement.

That being said, the private sector does play a role in brownfield UK transportation with most airports and ports, initially developed using public sector funds, being now privately owned and operated. 

On the railways, trains are owned and operated by the private sector, even if the tracks on which they run are government-owned. The Shaw Report, commissioned by the Government, is currently exploring options surrounding the funding and development of the railways in the UK. 

And in continental Europe, many roads are developed and owned by private companies. 

Access to funding

"There are two principal ways that government transport projects can access private sector funding," says Roseman. 

"The Government can build an asset, sell it to the private sector and reinvest the money in other greenfield transport or other government initiatives."

"Alternatively, the Government can coordinate with the private sector from the beginning to structure a transaction that works for all parties, through a public private partnership." 

The public private partnership model

In the UK, public private partnerships are the preferred model for private sector engagement. 

While such partnerships are often associated with social infrastructure such as schools, hospitals and prisons, a number of roads have been built on this basis. In addition, the Thames Tideway Tunnel project - a large sewer which is being built in central London - is another good example of the public and private sectors working together to achieve broader infrastructure delivery objectives.

In such cases, the Government typically provides a guaranteed revenue stream or guarantee which makes the risk of large, complex construction projects then viable for private sector operators.  

Collaboration for the future

To ensure sustained growth and connectivity, there will always be a clear need to expand existing transportation infrastructure.  Where cities fail to deliver infrastructure on or ahead of population growth they will fall behind other global peers. 

Given the size and scale of most construction projects, government involvement is a prerequisite, at least in the initial stages. 

However, there is a genuine role for private sector operators in the delivery of well planned and structured projects. 

Case study: Acquisition of a stake in Angel Trains



AMP Capital, together with a consortium of investors, acquired a significant additional stake in Angel Trains, making AMP and its consortium the majority shareholders. Angel Trains is one of the three major rolling stock operating companies (ROSCOs) in the UK, with around 35 per cent market share and a portfolio of approximately 4,500 vehicles.

Macquarie's role

Macquarie Capital acted as sole financial adviser on the acquisition of Angel Trains from Arcus European Infrastructure Fund I. The team delivered an extremely attractive outcome for the consortium, enabling the acquisition of a large stake at a significant discount compared to previous and recent market benchmarks.

Macquarie's value-add

Macquarie Capital leveraged its global client platform to successfully bring together a fully funded consortium as well as demonstrating expertise in the UK and European ROSCO space. The team provided unrivaled tactical advice and navigation through complex shareholder dynamics and demonstrated the ability to deliver tailor-made execution to ensure all the consortium members met an accelerated transaction timeline.