DigitalBridge Group (NYSE: DBRG) announced that it has agreed to acquire AMP Capital’s international infrastructure equity investment management business, part of AMP’s Collimate Capital subsidiary, for upfront cash consideration of $328m USD (A$458m) and total value of up to $457m USD (A$638m). Specifically, DigitalBridge is making the following upfront and potential future payments:
- Investment Management Platform: upfront cash payment of $143m USD
- Performance Fees: $49m USD payment for rights to the carried interest of AMP Capital’s Global Infrastructure Fund I (GIF I) and Global Infrastructure Fund II (GIF II)
- Sponsor Fund Investments: $136m USD for the purchase of funded sponsor investments in GIF I and GIF II at fair value, in Q4 2021. Additionally, future appreciation will correlate with investment performance
- Contingent Payments: potential earnout consideration of up to $129m USD, based primarily on future fee-earning assets under management (FEEUM) raised for the third and fourth flagship funds in the Global Infrastructure Fund series, known as GIF III and GIF IV
As part of this transaction, DigitalBridge will become the investment manager for AMP Capital’s existing digital infrastructure portfolio companies including Everstream Solutions, VX Fiber, Expedient Data Centers, and Telecom Infrastructure Partners (TIP).
Finally, the transaction is expected to close before the end of 2022, with a longstop date of April 30, 2023.
AMP Capital – International Infrastructure Equity Business
AMP Capital’s international infrastructure equity business comprises four investment funds with $5.5bn in fee-earning assets under management (FEEUM), including:
- GIF I: $1.4bn Global Infrastructure Fund I (GIF I), which is a 2016 vintage fund
- GIF II: $3.4bn Global Infrastructure Fund II (GIF II), which is a 2019 vintage fund
- Strategic Infrastructure Trust of Europe (SITE) No. 1
- Strategic Infrastructure Trust of Europe (SITE) No. 2
Collectively, these investment vehicles have 10-year fund lives and generate, on average, 1.2% management fees.
AMP Capital’s international infrastructure equity business invests in the value-add mid-market infrastructure segment, with its investment exposure primarily in North America and Europe. The funds target investments in the infrastructure sectors of health & social, transport & logistics, energy & utilities, and digital. As shown below, around 60% of GIF II is committed to digital infrastructure investments.
Portfolio Companies – Digital Infrastructure
Within digital infrastructure, AMP Capital has made four investments in the sub-sectors of towers (ground leases), data centers, and fiber. As such, DigitalBridge will gain control of the following AMP portfolio companies:
- Everstream Solutions: super-regional dark and enterprise fiber provider with a network spanning over 27k fiber route miles throughout 10 states in the Midwest and Mid-Atlantic
- VX Fiber: headquartered in Sweden, VX Fiber designs, builds, and operates fiber-to-the-premises (FTTP) open access networks in South Africa, the UK, and Belgium
- Expedient Data Centers: operates 11 data centers in the United States and provides services including retail colocation, managed cloud, managed services, and network access products
- Telecom Infrastructure Partners (TIP): a newly-formed ground lease aggregator which has been seeded with up to $350m in equity and plans to invest in 10k+ wireless site leases
AMP Capital’s international infrastructure equity business has 25+ investment professionals focused on origination and asset management, which are principally based in the UK. Upon completion of the transaction, the operations will form a new, distinct business unit within DigitalBridge’s investment management business. Therefore, the acquisition augments DigitalBridge’s current team of digital infrastructure professionals.
Regarding the potential $129m earnout consideration paid by DigitalBridge to AMP, the contingent payments have been linked to future FEEUM raised for the third and fourth flagship funds in the Global Infrastructure Fund series. Specifically, the earnout consideration will be triggered based on thresholds set, ranging from $1.5bn to $4.75bn of FEEUM raised. Notably, AMP anticipates the maximum earnout of $129m may not be received.
Below are DigitalBridge and AMP’s agreed timelines for the fundraising of the third and fourth flagship funds in the Global Infrastructure Fund series.
Global Infrastructure Fund III (GIF III)
DigitalBridge aims to commence fundraising for the third flagship fund in the Global Infrastructure Fund series, known as GIF III, during 2023 or sooner. Further, DigitalBridge targets closing the fundraise for GIF III by no later than December 31, 2024. However, DigitalBridge has the ability to extend the GIF III closing date to December 31, 2025, if it deems such extension is advisable.
Global Infrastructure Fund IV (GIF IV)
DigitalBridge aims to commence fundraising for the fourth flagship fund in the Global Infrastructure Fund series, known as GIF IV, at the earliest of: i) 180 days following the time at which at least 75% of aggregate commitments to GIF III have been invested, committed, or allocated for investment, ii) 180 days following the date the GIF III investment period expires, or iii) the end of calendar year 2028. Further, DigitalBridge targets closing the fundraise for GIF IV by no later than December 31, 2029.
Transaction Rationale – DigitalBridge
AMP Capital’s international infrastructure equity business fits directly adjacent to DigitalBridge’s flagship value-add digital infrastructure equity investment funds, namely DigitalBridge Partners I (DBP I) and DigitalBridge Partners II (DBP II). Particularly, the acquisition will scale and enhance DigitalBridge’s capabilities in the mid-market infrastructure segment. To this end, DigitalBridge is gaining a management team, portfolio of existing investments, in-place earnings, and further FEEUM growth potential.
Overall, DigitalBridge will be able to capitalize on smaller and theoretically higher-return mid-market investment opportunities. As a reference point, AMP’s Global Infrastructure Fund series makes equity investments ranging from $100m to $500m, whereas DigitalBridge’s DBP II fund targets equity investments of $700m to $1bn+.
Earnings Uplift and Valuation
Upon closing the acquisition of AMP Capital’s international infrastructure equity business, DigitalBridge’s FEEUM will increase by $5.5bn, to $23.8bn, as of Q4 2021, on a pro forma basis. In turn, the transaction will provide $23m of incremental run-rate fee related earnings (FRE) to DigitalBridge.
Based on DigitalBridge’s aggregate valuation of $192m for AMP Capital’s investment management platform ($143m) and performance fees ($49m), the unit is being valued at a transaction multiple of 8.4x.
|IM Platform Consideration||$192m|
|Incremental IM FRE (2022E)||$23m|
Note that this transaction multiple calculation excludes dollar-for-dollar Sponsor Fund Investments ($136m) and long-term Contingent Payments ($129m).
Limited Partners (LPs)
DigitalBridge will gain 140+ limited partners across North America, Europe, and Asia-Pacific through the acquisition of AMP Capital’s international infrastructure equity business.
Transaction Advisors – DigitalBridge, AMP Capital
DigitalBridge’s legal advisor was Sullivan & Cromwell.
AMP Capital’s financial advisor was Broadhaven Capital Partners. Additionally, AMP Capital’s legal advisor was Nixon Peabody.
Transaction Background – DigitalBridge and AMP Capital
Prior to this transaction, over the past 6 months, DigitalBridge and AMP Capital have recently become more intertwined – both in terms of personnel and investments. Indeed, the following developments may have helped DigitalBridge fend off competition from Apollo Global Management who was also competing for AMP’s business and has become increasingly active in digital infrastructure.
In mid-November 2021, Matt Evans joined DigitalBridge, as Head of Europe, following his 9-year tenure at AMP Capital. At AMP Capital, Evans was responsible for the firm’s investments in Expedient Data Centers and Everstream Solutions – both being companies which DigitalBridge will be gaining control over.
In April 2022, DigitalBridge participated in Everstream Solutions’ $1bn debt financing. Specifically, DigitalBridge Credit led, in-partnership with CPP Investments, a $220m commitment to Everstream in the form of a junior, holding company term loan.