Private-public partnerships spark a new wave of deals

While the fevered pitch of debt-fuelled acquisition activity has waned, investors are still hungry for solid returns. With infrastructure requirements ranging from toll roads and railways to hospitals and correctional facilities, the next wave of activity may be in private-public partnerships.

“Globally, this sector has seen explosive growth over the last decade,” says Mark Bain, a partner at Bennett Jones LLP, “in a major trend spanning many jurisdictions and many sectors. Canada is quickly becoming one of the most vibrant PPP markets in the world and is attracting international attention.”

Following some excellent but isolated PPP projects, he says, the market is now maturing to offer more structured and sustained programs. “In the last three years, at least four provinces have established PPP agencies or departments, which greatly helped to improve the predictability of deal flow, procurement processes and transaction terms within the new programs.

The federal government is in the process of adding further substance to the market and transaction expertise through its Building Canada program.”

The future of these initiatives will be driven, says Mr. Bain, first by the fact that infrastructure renewal and expansion is now widely accepted as an imperative response to several generations of underinvestment.


“Second, the PPP approach is now a more broadly understood, acceptable and credible alternative.” Pension funds and other domestic and international pools of private equity are available for PPP transactions, he says. “We may see additional private equity interest in the sector, though the potential supply may exceed the current demand. If the current credit market volatility continues, within each transaction we may see additional equity investments and less leverage from debt than we have seen in the recent past.”

Nicholas Williams, partner at Ogilvy Renault LLP, says, “P3s, as they’re known, or Alternative Financing Partnerships in Ontario, involve the public sector partnering with the private sector to deliver needed infrastructure in a cost effective way. One of their hallmarks is risk transfer. One of the misnomers of P3s is that they’re always much more expensive, because the government can borrow money more cheaply, but there is more than just the capital cost of a project. It’s actually quite an ingenious way of transferring that risk to the private sector…and P3s typically offer a pretty stable return.”

Private-public partnerships are here to stay, says Myron Dzulynsky, partner at Gowlings, and there are opportunities to be had in the sector. For investors, “it provides a long-term stable asset to invest in. From a government and public perspective, there is cost certainty driven by the greater financial and operational discipline of the private sector.”

“Infrastructure renewal is long overdue,” says Mr. Bain, “and will have a critical influence on both our economy and our quality of life. We really need to leave the next generation with more than a dirty environment, an underfunded pension plan and a crumbling infrastructure stock. Private-public partnership is one good tool to achieve that objective.”