Leo Kolivakis is a blogger, trader and independent senior pension and investment analyst. This post was originally published at Pension Pulse.
On Tuesday, OMERS Private Equity announced it acquired Inmar:
OMERS Private Equity (“OPE”), the private equity arm of OMERS, the pension plan for municipal employees in Ontario, together with management, has agreed to acquire Inmar (“Inmar” or the “Company”) from ABRY Partners (“ABRY”). ABRY will continue to be a significant shareholder in the Company.
Founded in 1980 and headquartered in Winston-Salem, North Carolina, Inmar operates intelligent commerce networks, connecting offline and online transactions in real time for the world’s largest retailers, manufacturers and trading partners across multiple industries. Inmar’s customers rely on the Company to securely manage billions of dollars in transactions across its promotions, supply chain, and healthcare platforms. In addition, Inmar’s platforms generate meaningful data and enable the Company to provide clients with actionable analytics and insights to meet the evolving needs of shoppers, patients and businesses.
David Mounts, Chairman and CEO of Inmar, said, “We are excited to partner with OPE at this stage in Inmar’s evolution and equally excited to be continuing the strong relationship we have with ABRY who I have come to respect and appreciate deeply for their collaboration and knowledge.” Mr. Mounts continued, “OPE brings significant financial resources and experience in partnering with growing companies like Inmar. With OPE and ABRY behind us we will increase investment in technology and expand into new and emerging markets. Our partnership will position us to capitalize on our platform and set in motion the next phase of substantial growth.”
“We look forward to partnering with David and the entire management team to support the Company’s next phase of growth. Inmar is an excellent addition to our growing business services portfolio,” said Eric Haley, Managing Director at OPE. “Inmar’s focus on being a trusted intermediary for its customers has continued to impress us, and we believe the Company will continue to be a leader in the markets it serves.”
“The investment in Inmar is consistent with OPE’s strategy of acquiring industry leading companies with world class management. The Company has steadily grown beyond commerce and into analytics and engagement solutions, which is an area where we see great opportunity. Unlike traditional PE firms, OPE can hold investments for longer durations, and Inmar, like recent investments in DTI/Epiq and Forefront Dermatology, matches up well with our strategy of choosing assets that have excellent long-term fundamentals,” said Michael Graham, OPE Senior Managing Director and Head of North America.
OPE will support management to continue its impressive track record of profitable growth both organically and through strategic acquisitions.
This transaction is expected to close in the second quarter of 2017.
Weil Gotshal & Manges LLP is acting as legal counsel for OMERS Private Equity. Kirkland & Ellis is acting as legal counsel for ABRY Partners and Inmar. Wells Fargo Securities, LLC is acting as financial advisor to Inmar. Credit Suisse and Wells Fargo Securities, LLC are serving as joint lead arrangers and joint bookrunners for the credit facilities in support of the transaction.
Anyone who has redeemed a coupon, filled a prescription or returned a product, has touched Inmar. Inmar applies technology and data science to improve outcomes for consumers and those who serve them. As a trusted intermediary for over 35 years, the Company has unmatched access to billions of consumer and business transactions in real time. Inmar’s analytics, platforms and services enable engagement with shoppers and patients, and optimize results. To learn more about Inmar’s service offerings visit www.inmar.com
About OMERS Private Markets and OMERS Private Equity Inc.
OMERS Private Markets [OMERS Private Equity and Borealis Infrastructure] invests globally in private equity and infrastructure assets on behalf of OMERS, the pension plan for municipal employees in Ontario. OPE’s investment strategy includes active ownership of a portfolio of industry-leading businesses across North America and Europe. Investments are aimed at steady returns to help deliver strong and sustainable pensions to OMERS members. OPM has offices in Toronto, New York, London and Sydney. For more information, please visit www.omersprivatemarkets.com.
Founded in 1962, OMERS is one of Canada’s largest defined benefit pension plans, with more than CAD$85 billion in net assets, as at December 31, 2016. It invests and administers pensions for more than 470,000 members from municipalities, school boards, emergency services and local agencies across Ontario. OMERS has employees in Toronto and other major cities across North America, the U.K., Europe and Australia – originating and managing a diversified portfolio of investments in public markets, private equity, infrastructure and real estate. For more information, please visit www.omers.com.
Interestingly, there is nothing stated about ABRY Partners, the private equity fund that presented this opportunity to OPE:
Founded in 1989, ABRY Partners is one of the most experienced and successful media, communications, business and information services focused private equity investment firms in North America. We invest in high quality companies and partner with management to help build their businesses. Since its founding, ABRY has completed over $62 billion of leveraged transactions and other private equity, mezzanine or preferred equity placements, representing investments in over 550 properties.
ABRY maximizes the value of its investments by concentrating on certain industry sectors where we have substantial operating and investment experience. Because ABRY brings deep industry insight to the investment process, we are able to quickly understand key issues, accurately assess opportunity, value and risk, and bring relevant information to bear. Simply put, we partner with skilled executives and invest significant capital to help build stronger companies that become industry leaders.
As far as Inmar, you can learn more about this company here, but I like this overview:
“Anyone who has redeemed a coupon, filled a prescription or returned a product, has touched Inmar. We apply technology and data science to improve outcomes for consumers and those who serve them. As a trusted intermediary for over 35 years, we have unmatched access to billions of consumer and business transactions in real time. Our analytics, platforms and services enable engagement with shoppers and patients, and optimize results.“
Last week, I discussed how PSP and OTPP are investing data centers and stated that over the last five years, everything in the IT space is about the rise of data storage, data analytics and cloud computing.
Michael Graham, OPE Senior Managing Director and Head of North America, states something important in the press release:
“The investment in Inmar is consistent with OPE’s strategy of acquiring industry leading companies with world class management. The Company has steadily grown beyond commerce and into analytics and engagement solutions, which is an area where we see great opportunity. Unlike traditional PE firms, OPE can hold investments for longer durations, and Inmar, like recent investments in DTI/Epiq and Forefront Dermatology, matches up well with our strategy of choosing assets that have excellent long-term fundamentals.”
As Ron Mock, Ontario Teachers’ CEO, explained to me last week when I went over OTPP’s 2016 results, one form of direct investment comes when the life of a private equity fund comes to end (typically after four or five years), and in order to exit from an investment, the general partner (GP or private equity fund) will sell a stake to a limited partner (LP or investor) who knows the company well and can carry it on its books for a long time.
This is what happened in this deal. OPE likely bid on it and acquired a stake in Inmar. Details of the deal are not disclosed but as stated in the press release, it matches up well with OPE’s strategy of choosing assets that have excellent long-term fundamentals. Because OPE has a much longer investment horizon than a private equity fund, it can carry this investment for a lot longer.
What else has OMERS been up to lately? A couple of weeks ago, Simon Jessop of Reuters reported, OMERS, Kuwaiti investors take stake in U.K.’s Thames Water:
A consortium of Canadian and Kuwaiti investors has agreed to buy a minority stake in Britain’s Thames Water from funds managed by Macquarie, ending the Australian group’s 11-year investment in Britain’s largest water firm.
The deal is the latest high-profile acquisition of British infrastructure by overseas investors, as pension schemes, sovereign wealth funds and others look to tap into stable returns tough to find in other financial markets.
Canadian pension fund investor Borealis Infrastructure and the infrastructure investing arm of the Kuwait Investment Authority (KIA) are buying a 26 per cent stake in Kemble Water Holdings, the holding company of Thames Water.
Borealis, infrastructure investment manager for OMERS, the pension plan for Ontario’s municipal employees, and Wren House Infrastructure Management, the infrastructure arm of the KIA, said they had agreed to buy the stake from Macquarie Infrastructure & Real Assets.
No financial details were disclosed.
Thames Water is Britain’s largest water and wastewater services provider, with 15 million customers across London, the Thames Valley and surrounding areas. It supplies 2.6 billion liters of drinking water per day.
“The Consortium has met with Thames Water’s existing management team and… will support Thames Water’s ongoing 4.5 billion pound capital investment program – for the 2015 to 2020 regulatory period – the largest in the UK water industry,” Borealis and Wren House said in a joint statement.
Macquarie, in a separate statement, said its Macquarie European Infrastructure Fund 2, which held most of the stake, was divesting as it approaches maturity and the deal would end the group’s involvement with Thames Water.
During its tenure, Thames Water invested more than 11 billion pounds, or around 1 billion pounds a year, more than twice that invested during the five-year period before privatization in 1989, it said.
“Today, Thames Water is undoubtedly a better, stronger and more customer-focused business than that which we invested in back in 2006,” said Martin Stanley, global head of Macquarie Infrastructure and Real Assets.
You can read the press release on this deal on OMERS’s website here.
Gill Plimmer of the Financial Times provided more financial details in her article, Macquarie sells final stake in Thames Water for £1.35bn:
Macquarie, the Australian infrastructure bank, has sold its final stake in Britain’s biggest water supplier Thames Water for an estimated £1.35bn.
The infrastructure arms of the Canadian pension fund Omers and the Kuwait Investment Authority have bought the 26 per cent stake.
It highlights a growing appetite for shares in British utilities as they are increasingly seen as “prized assets” for investors because they deliver steady returns.
Borealis Infrastructure and Wren House, the infrastructure investing arms of Omers and KIA respectively, bought the stake in Kemble Water Holdings, the holding company of Thames Water.
Thames Water has a regulatory capital value of £11.9bn, providing about 2.6bn litres of tap water to about 9m customers per day in London and the Thames Valley region.
The financial details of the deal were not disclosed, but it is understood Macquarie has received about £1.35bn for the sale, which had been delayed from last year in part due to uncertainties over the impact of Brexit.
The timing of the sale — a decade after Macquarie bought Thames Water from RWE for £8bn — is driven by the 10-year life of most Macquarie funds.
Last week Fiera Infrastructure paid $149m for an additional 2.4 per cent stake in Thames Water, while in February Australian fund manager Hastings Fund Management bought a 50 per cent stake in South East Water for about £200m.
“The consortium has met with Thames Water’s existing management team and . . . will support Thames Water’s ongoing £4.5bn capital investment programme — for the 2015 to 2020 regulatory period — the largest in the UK water industry,” Borealis and Wren House said in a joint statement.
The sale comes as Thames Water is due to appear in court for sentencing this week after being warned that it could receive its “biggest fine in history”.
The company has admitted that it dumped millions of litres of sewage into the river Thames at six sites in Henley-on-Thames, Didcot, Little Marlow and Littlemore, killing fish and other wildlife.
Meanwhile, construction started at the end of last year on a £4.2bn, 16-mile “super-sewer” to prevent raw sewage overflowing into the Thames.
Thames Water and the government have set up Bazalgette Tunnel Limited, a separate company, that will own, manage and finance the project during construction. Thames Water has already raised customers’ water bills to help pay for the tunnel.
In addition to its stake in Thames Water, Macquarie-managed funds own stakes in three UK power stations, airports and Arqiva, the mobile and TV mast company.
It is also tipped to buy the Green Investment Bank, a government-owned bank that invests in renewable energy projects.
Last week, I covered why the Caisse is betting big on insurance and water, and as you can see, other large Canadian pensions are also investing in the water industry, especially in the UK where they have been investing in infrastructure for a very long time.
I’m sure a few other consortia made up of Canadian and foreign investors bid on this deal but in the end, OMERS Borealis and KIA’s Wren House Infrastructure Management got it.
Infrastructure investments are very attractive for pensions but it is a heavily regulated sector which is why this was one of the terms of the deal:
The Consortium will support Thames Water’s ongoing £4.5 billion capital investment programme – for the 2015 to 2020 regulatory period – the largest in the UK water industry.
Nevertheless, these assets are extremely long term in nature and typically offer decent yields in between stocks and bonds with no market volatility. This is why pensions with long investment horizons love them.
The problem is that competition for these infrastructure assets is fierce, so consortia typically have to outbid each other on pricey deals. In other words, for now, the real winner in this deal is Macquarie Infrastructure and Real Assets.
Still, Thames Water is a great infrastructure asset, one that OMERS’ Borealis Infrastructure can add to its existing portfolio of great assets.