Emerging Trends in Private Equity Investments in ICT Infrastructure

Private equity (PE) firms increasingly focus on Information and Communications Technology (ICT) infrastructure as a strategic investment avenue. Fuelled by demand for hyperscale cloud, AI workloads, and national broadband rollouts, these assets are pushing into the core of institutional portfolios. Once considered a niche subset of infrastructure - data centres, fibre, and towers - are now recognised as critical enablers of economic competitiveness, offering investors long-term contracted revenues, scale advantages, and defensible margins.

Why is ICT infrastructure drawing private capital? 

ICT infrastructure aligns with PE and infrastructure fund goals by requiring significant capital, offering contracted revenues, and presenting opportunities for value creation through expansion and operational excellence. As interest rates stabilise, managers reallocate capital into digital infrastructure for yield and growth.

Surge in Digital Infrastructure Investments 

The need for strong digital infrastructure has reached unprecedented levels, driven by the explosion of data, the emergence of artificial intelligence (AI), and the growth of the Internet of Things (IoT). Data centres, fibre optic networks, and cloud computing platforms are vital to this infrastructure.

In response, PE firms are investing in digital infrastructure providers. For instance, in 2024, Veritas Capital Fund Management raised US$14.4 billion for its ninth fund, exceeding its US$13 billion target and attracting a more diverse investor base, such as US public pensions and global private wealth.

Emphasis on AI and Automation 

AI is transforming the ICT industry by providing opportunities for automation, predictive analytics, and improved decision-making. PE firms actively invest in businesses that use AI to improve operational efficiency and develop innovative solutions.

Vista Equity Partners, a leading PE firm, has invested over £100 million in Joblogic, a field service management software company based in the UK. This investment is intended to support Joblogic's growth, particularly in expanding its AI capabilities and entering the computer-aided facility management (CAFM) market. Joblogic, officially known as Tracer Management Systems, started as an internal tool for Carter Group and currently generates approximately £30 million in annual recurring revenue. The company serves over 400 employees in the UK, Vietnam, and Pakistan, primarily focusing on small and mid-sized businesses in the UK and Ireland.

Strategic Focus on Energy Transition and Sustainability 

Sustainability is pivotal in PE investments, with an increasing focus on energy-efficient technologies and renewable energy sources. PE firms progressively allocate capital to companies that aid in the energy transition, aligning with global sustainability objectives.

Apollo Global Management, a prominent PE firm, has teamed up with German utility RWE in a collaborative investment initiative to broaden its European presence. As part of this agreement, Apollo will invest €3.2 billion upfront to jointly acquire a 25% stake in Amprion, a significant German power grid operator. This investment is intended to bolster Amprion's long-term growth strategies, especially as Germany revamps its energy grid to shift towards renewable energy sources.

Growth of Secondary Market Transactions 

The secondary market for PE stakes is witnessing substantial growth, offering liquidity options for investors and avenues for strategic acquisitions. PE firms increasingly participate in secondary transactions to enhance their portfolios and exploit market dynamics.

Carlyle Group has announced that it has raised US$20 billion to acquire secondary, or second-hand, PE stakes during a market slowdown in IPOs and acquisition deals. The firm's subsidiary, AlpInvest, has secured US$15 billion for its primary secondary market fund and an additional US$3.2 billion from co-investors. Furthermore, another US$2 billion was raised from private wealth vehicles designed to invest high-net-worth individuals' capital alongside the central fund.

Expansion into Emerging Markets 

Emerging markets present significant opportunities for PE investments in ICT infrastructure. Growing digital adoption in Asia-Pacific, Latin America, and Africa drives demand for ICT services and enables investment in scalable infrastructure projects.

Infravia Capital Partners, a PE fund in Paris, France, specialises in acquiring interests in infrastructure and technology growth companies. The firm has made notable investments in data centre operations, including acquiring a significant stake in Next Generation Data, a company in Newport, Wales, for approximately £100 million in 2016. In 2017, Infravia purchased two Swiss data centre firms, Green.ch and Green Datacenter, from Altice. These investments align with Infravia's strategy to back companies with strong growth potential.

Integration of Advanced Technologies for Operational Efficiency 

PE firms are investing in companies adopting advanced technologies such as AI, machine learning, and automation to improve operational efficiency. These innovations help businesses streamline processes, reduce costs, and enhance service delivery.

One Equity Partners (OEP), a PE firm located in New York, specialises in midmarket buyouts in North America and Europe's industrial, healthcare, and technology sectors. OEP aims for businesses generating approximately US$35 million in earnings before interest, taxes, depreciation, and amortisation (EBITDA) and prefers transactions where firms of similar size merge. The typical investment amounts range from US$75 million to US$150 million, employing a conservative leverage strategy that maintains debt at 50% per deal. Recent activities include a successful exit from the UK's Brush Group, yielding a 5.2x return.

Regulatory Considerations and Policy Support 

Government policies and regulations are essential in influencing the environment for PE investments in ICT infrastructure. Favourable policies can encourage investments, whereas strict regulations might create obstacles.

The proactive policy approach of the UK stands in contrast to the more cautious perspectives in the US, especially during the Trump administration. Investors are increasingly drawn to the UK's renewable and national energy strategies due to their stability and potential for long-term returns. Efforts like planning reforms, prolonged subsidies through contracts for difference, and backing for carbon capture and water initiatives enhance investor confidence.

Data Centre Expansion and Cloud Infrastructure 

Rising data generation and consumption drive demand for data centres and cloud infrastructure. PE firms are investing in these service providers to meet the evolving needs of businesses and consumers.

Amazon, Google, Meta, and Microsoft invested roughly US$180 billion into data centre expansion in 2024, with large portions of these investments earmarked for deals with private market firms to develop energy infrastructure. This trend underscores the critical role of data centres in supporting the digital economy and the opportunities for PE firms to participate in this growth.

Infrastructure Investment Trusts (InvITs) in India 

In India, Infrastructure Investment Trusts (InvITs) are gaining traction as a vehicle for PE investments in ICT infrastructure. InvITs allow investors to pool capital to invest in infrastructure projects, providing a source of stable income and capital appreciation.

At least three InvITs are expected to launch IPOs in the current fiscal year to expand investor participation and improve liquidity for current stakeholders. Despite expansion efforts, retail participation remains low at 9%, hindered by high investment thresholds and limited awareness. Foreign investors dominate the InvIT space, accounting for over half of institutional investments.

Conclusion 

PE investments in ICT infrastructure are set to experience ongoing growth fueled by technological progress, sustainability demands, and strategic market developments.

PE firms are concentrating on digital infrastructure, the integration of AI, energy transitions, secondary market deals, emerging markets, operational efficiencies, regulatory factors, data centre growth, and InvITs to effectively manoeuvre through the changing environment.

By aligning their investment strategies with these trends, PE firms can take advantage of the opportunities arising from the digital transformation of the global economy.