The 407 toll highwayFred Lum/The Globe and Mail
Public Sector Pension Investment Board is making its largest-ever investment in Canada with a multibillion-dollar deal to acquire a piece of Ontario’s 407 ETR toll road.
In a series of transactions announced Thursday morning, Montreal-based engineering giant AtkinsRéalis Group Inc. ATRL-T said it was divesting its 6.76-per-cent stake in the toll road for nearly $2.8-billion.
Spanish construction giant Ferrovial will buy most of that stake – 5.06 per cent – for $2.1-billion and Canada Pension Plan Investment Board (CPP Investments) will acquire AtkinsRéalis’s remaining stake for $700-million.
In a parallel deal, PSP Investments will acquire 7.51 per cent of the 108-kilometre toll road, which runs from Burlington to Oshawa, from CPP Investments for an up-front payment of nearly $2.4-billion plus an undisclosed deferred payment to be made up to 18 months after the deal closes.
The PSP investment is being made amid mounting pressure on Canada’s largest pension funds to make more of their investments inside Canada. The federal government has openly called on major pension funds – often referred to as the Maple 8 – to boost their domestic investments.
“As we think about opportunities in Canada, with the appetite we have, it is not often that we see opportunities of this size, and so when something like this came about, that was certainly very interesting,” said Michael Rosenfeld, managing director of infrastructure investments at PSP, a Crown corporation that manages retirement funds for federal employees.
“This is, for us, the largest acquisition we have ever made in Canada.”
AtkinsRéalis first put its stake in the 407 up for sale in June, 2024. At the time, it was estimated to be worth $1.7-billion, which suggests the overall value of the 407 has grown by nearly 65 per cent over the nine-month period since then.
In the middle of that period – in October, 2024 – Ontario Premier Doug Ford publicly suggested that the provincial government might repurchase the 407 ETR (for Express Toll Route). Based on the price AtkinsRéalis is getting for its stake, the entire toll road is now valued at more than $40-billion.
The 407 regularly generates in excess of a billion dollars in annual earnings before interest, taxes, depreciation and amortization (EBITDA). And because of the extremely long concession held by its owners – the 1999 lease given by Ontario’s then-premier Mike Harris does not expire until 2098 – the 407 is a particularly coveted holding for long-term investors like pension funds.
“Looking at the size of the road, the duration of the road and the growth of the road from a volume perspective, those are prized assets in the infrastructure market,” James Bryce, head of infrastructure at CPP Investments, said in an interview from the fund’s British office in London.
“People like us are after long-duration, stable, growing cash-flow businesses and 407 is exactly that.”
CPP will own 44.2 per cent of the toll road once all the transactions announced Thursday close, down from slightly more than 50 per cent previously. Mr. Bryce said CPP had been planning to reduce its stake since 2019 when the pension fund struck a $3.3-billion deal to buy an extra 10 per cent of the 407 from AtkinsRéalis, which was then known as SNC-Lavalin Group Inc.
“At that time, we always knew at some point in time we would be looking to reduce the exposure that we had to a certain degree and we are doing that now, six years later,” Mr. Bryce said. “With AtkinsRéalis moving on and PSP coming in, we saw it as an opportunity to right-size our position.”
For AtkinsRéalis, the sale is part of a broader strategic plan to streamline what had previously been a wide-ranging business model around two core businesses.
“This is an important step in our strategic journey to simplify the business, create value for shareholders and become a focused, world-class engineering services and nuclear company,” AtkinsRéalis CEO Ian Edwards told analysts on a call Thursday.
Of the roughly $265-billion that PSP Investments holds in total assets under management, roughly one-fifth, or about $56-billion, was in Canada as of March 31, 2024, when the fund last disclosed its holdings.
Part of the difficulty that pension funds have faced in trying to grow their proportion of Canadian holdings, Mr. Rosenfeld said, is that domestic assets large enough to attract their interest are very rarely up to sale.
“We have had a long history of looking very closely in Canada, but we don’t often see opportunities of this kind of scale, which can make it challenging for a pension fund like PSP that has significant assets under management and very large, multibillion-dollar deployment targets on individual transactions,” he said.
“To put it into context. I have been at PSP for about 18 years and this is the first time we’ve seen something of this size in Canada.”
Under federal legislation known as the Foreign Property Rule, major Canadian pension funds in the 1970s were prevented from investing more than 10 per cent of their assets outside of Canada. Over the following decades, that limit was gradually increased until 2005, when it was removed entirely.
CPP is Canada’s largest pension fund with nearly $700-billion in assets under management as of Dec 31, 2024. Just 11 per cent of that, or $73.7-billion, is invested in Canada, though Mr. Bryce said there is a desire to increase that.
“For us, we are very interested in trying to put money to work in Canada, but as part of a global strategy,” he said. “It is no surprise to me that there is a desire to encourage inward investment in Canada and it is something we are looking at, but always have done, so it is business as usual in that regard.”
With a report from Nicolas Van Praet