A highly proactive approach to asset management is essential to creating value in the mid-market

Mid-market infrastructure assets present investors with significant opportunities for enhanced risk-adjusted returns. They are large enough to be essential but typically not yet fully professionalised and present broad opportunities for growth. For experienced investors, this offers significant opportunity to create more efficient and larger infrastructure businesses that provide for the communities they serve well into the future.

Ancala has successfully invested in mid-market infrastructure for over 15 years. In our experience, capital alone is not enough to unlock the potential of this segment. To unlock the true value of the mid-market, managers must bring deep industrial expertise, hands-on involvement and the operational judgement that comes from having run similar critical infrastructure businesses before.

Since 2010, Ancala has developed a proactive asset management approach built around these principles, one that works in close collaboration with management teams to strengthen operational foundations, improve performance and create the conditions for value creation.

Across our portfolio of critical mid-market infrastructure companies, we consistently see that this combination of active engagement and industrial experience delivers superior outcomes.

Close collaboration

In today’s environment, businesses of all sizes are grappling with inflationary pressures, labour scarcity, shifting regulatory positions and geopolitical tensions. Mid-market companies respond best in such an environment when investment managers understand the operational realities they face and can work alongside management teams to overcome challenges.

This is why Ancala’s approach is deliberately proactive and hands-on. We maintain regular contact – often daily – with portfolio companies and embed Industry Partners – former CEOs and chairs of leading infrastructure companies – into governance structures so that decisions are informed by people who have deep experience of running similar businesses. Our asset management team is composed of individuals with financial and operational expertise that have previously worked within infrastructure companies, giving them the practical experience required to capitalise on opportunities and find solutions.

This close contact also begins well before we invest. We take an extensive approach to assessing investment opportunities so by the time we acquire a business, we have already developed a detailed understanding of its constraints, opportunities and operational complexities. This creates a smoother, faster transition into ownership and makes value creation possible earlier.

Strengthening operational foundations

Take last-mile network utility owner and operator Leep Utilities. We first invested in 2017 after identifying the last-mile utility sector as one with highly attractive infrastructure fundamentals. While the business had significant growth potential, it required Ancala to build out the business’ leadership team and establish the commercial, operational and regulatory functions needed to pursue third-party developers at pace.

Since then, Leep has grown from around 2,000 contracted connections to more than 170,000, driven by a combination of organic expansion, strong developer relationships and a strategic acquisition. Over this period, we have led the business to broaden its capabilities across multi-utility solutions, grow its workforce to more than 100 people and strengthen its senior team to support the next stage of growth.

With the foundations in place, Leep Utilities is now well positioned to continue to scale.

Leep Utilities owns and operates the last-mile electricity network at the iconic Battersea Power Station.

Managing complexity through industrial experience

Industrial experience is critical when navigating the highly complex execution of investments. Our acquisition of Avincis, carved out from Babcock International, required separating more than 220 aircraft and 160 operating bases across multiple jurisdictions while preserving critical emergency aerial services.

Our plan was put together based on our extensive carve-out experience and informed by bringing in senior industry leaders who had run comparable businesses. This gave the vendor and governments the confidence that we could deliver a clean transition, whilst maintaining service continuity.

After we acquired the business, our focus remained on improving the operations. We centralised operations, modernised commercial processes and optimised the capital structure. With these fundamentals strengthened, Avincis was then able to pursue new opportunities, primarily new contracts and its recent expansion into offshore wind helicopter services, a high-growth market that the business is now well placed to serve.

Mid-market assets rarely have the balance sheet flexibility to fund growth independently. Ancala’s willingness to deploy substantial follow-on funding – on average we have provided our portfolio companies with more than 45% of the initial investment capital in follow-on funding – has enabled significant acquisitive and organic growth opportunities.

Compounding incremental improvements

The same principles apply at Liverpool Airport, where we have worked closely with the management team since 2019. The most significant value creation has come from a sequence of carefully prioritised improvements across operations, customer experience, commercial performance and sustainability. The airport expanded and strengthened its airline relationships, in-housed its fuel farm, reshaped its retail, food, beverage and lounge offerings to provide a better service to customers resulting in increased passenger spend and installed on-site renewable energy that powers a quarter of the airport’s power consumption. Bringing on board an experienced industry advisor from the start has been pivotal to achieving these enhancements.

Together, these initiatives achieved transformational results. Passenger numbers have surpassed five million and reached historic all-time highs over the most recent summer period, EBITDA has more than doubled from pre-Covid levels and the airport continues to rank among the UK’s best for customer experience and punctuality. These improvements demonstrate the impact that close collaboration and industrial experience can deliver in the mid-market.

Unlocking major opportunities

Our work with Portsmouth Water – a water-only company providing clean drinking water to more than 320,000 people – further demonstrates how proactive asset management can unlock significant outcomes even in regulated environments.

From the outset of our investment, we saw the opportunity to deliver the UK’s first major reservoir since the 1980s, a project that had been discussed for decades but had never moved forward.

We worked closely with the business to negotiate an innovative water-resource sharing agreement with Southern Water and to secure regulatory support from Ofwat, two essential steps that broke the deadlock and allowed the project to proceed. The reservoir is now in construction and will enhance water resilience in the South East of the UK whilst protecting rare chalk streams.

Alongside this, we strengthened key operational capabilities, enhanced customer service performance, and are supporting the rollout of smart meters across the network. We have also provided over £170m of follow-on funding to finance the reservoir construction and drive these operational upgrades.

The result has been a business that consistently delivers industry-leading customer experience scores, maintains the lowest average water bills in England and Wales, and now has a once-in-a-generation infrastructure project under construction.

Proactivity pays

These examples reveal a prevailing theme: in the mid-market taking a highly proactive approach to asset management, underpinned by deep operational experience and close collaboration, leads to better outcomes. This approach enables faster and better decision making that leads mid-market business to create enduring value.

At Ancala, our proactive asset management approach has translated into our portfolio companies increasing revenues by more than 70% on average since our initial investment, and all of our funds performing in-line with or above expectations. Importantly, it has equipped critical mid-market infrastructure business with the capabilities they need to succeed long after our ownership.

Interested to find out more about Ancala’s approach to investing in infrastructure? Register your interest, here.