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For years, private equity firms chased software companies, technology platforms and consumer brands in search of outsized growth. Now, investors are turning toward a less glamorous but increasingly critical corner of the economy: the businesses building the physical infrastructure behind America's next economic expansion.
From data centers powering artificial intelligence to energy projects, semiconductor facilities and aging utility systems, private equity firms are increasingly targeting the contractors, engineering companies and infrastructure service providers responsible for turning massive investment plans into reality.
A recent report from FMI Corporation identified four areas as particularly attractive opportunities for private equity investment: non-residential electrical services, data and digital infrastructure, water and wastewater, and industrial services.
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"The built environment is the fundamental enabler of the U.S. economy, which creates a durable and enduring theme for private equity to invest around," Paul Giovannoni, FMI partner, Private Equity Consulting Services, said in the report.
The shift comes as private equity firms face growing pressure from limited partners to find new avenues for returns. After years of record fundraising, higher interest rates and elevated valuations have made traditional dealmaking more difficult, pushing sponsors to look for businesses where operational improvements — rather than financial engineering alone — can create value.
The built environment offers a different playbook. Many construction and infrastructure-related businesses operate in highly fragmented markets, creating opportunities for private equity firms to execute buy-and-build strategies.
Instead of acquiring a single large company, sponsors can purchase a regional operator and expand through acquisitions of smaller competitors, creating scale through consolidation.
"Much of these sectors remain highly fragmented with significant opportunity for true value creation through technology, enablement, process improvement and professionalization," FMI said. "The opportunity for institutional capital to deploy into founder-led businesses is immense."
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