In the wake of tightening municipal budgets, environmental violations, and aging infrastructure, private players are poised to capitalize on struggling water and wastewater utilities. According to a new report, U.S. Municipal Water & Wastewater: Defining the Addressable Market for Private Investment, Bluefield Research estimates the total market value of more than 78,000 community water and wastewater systems across the U.S. to be more than $728 billion.
“We’ve been talking about this trend for several years — municipalities and smaller private system owners’ growing inability to keep up with deteriorating utility infrastructure, so our analysis has been developed as a tool to evaluate the opportunities for investment,” says Reese Tisdale, president of Bluefield Research. “There seems to be no shortage of interest, and capital for that matter. Rather, the challenge for new market entrants, particularly for those looking to secure a platform from which to grow, is scale. Big deals are difficult to find.”
Approximately 15 percent of community water systems are already owned by private players, including investor-owned utilities and in the first half of 2017, Bluefield has tracked more than $224 million of investor-owned utility acquisitions across 53 deals. The most notable transaction by an industry outsider, which is still pending, was Eversource’s $1.68 billion takeover of Aquarion. Given the geographic and customer overlap of electricity, gas, and water, Eversource anticipates benefitting from synergies in billing, regulatory and branding.
At the extreme end of the spectrum, are highly-stressed public water systems – those with a combination of low-interest loan forgiveness applications, which signal financial distress, and serious EPA compliance violations. Bluefield’s analysis estimates these represent almost $2.5 billion of potential deal value.
“Herein lies the challenge,” says Tisdale. “The lion’s share of these systems are smaller and with significant issues, which play into the hands of well-established investor-owned utilities, like American Water and Aqua America, that have more widespread geographic footprints for tuck-in deals. As water needs grow across the country, we expect the private sector to continue to play a key role.”