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Aqua America Inc. (WTR - Snapshot Report) has taken the inorganic route to enhance its operations. This water utility has acquired seven water and wastewater utility systems in the first half of 2013. In North Carolina and Pennsylvania the company acquired three utilities each and one in Virginia. These acquisitions will allow Aqua America to further enhance its operation.

The water utility market in the U.S. is quite fragmented. Large operators like Aqua America find it easier to expand their footprint via strategic acquisitions. In 2012 the company made 18 acquisitions and a similar trend is noticed in 2013 as well.

We believe consolidation among the water utilities will remove overlapping overhead operating expenses and allow the companies to concentrate more on the development and maintenance of infrastructure. The water utility infrastructure in the U.S. is aging and unless a concerted effort is made the continuous supply of clean water might be disrupted.  

A report from Economic Development Research Group Inc. suggests an alarming gap between the water infrastructural requirement and actual investments planned for the coming years. The gap is expected to reach $84 billion in 2020 and widen to $144 billion in 2040. The report also revealed that without proper renewal or replacement, nearly 44% of the existing pipelines will become too poor for operation by 2020.

Other water utilities are also making strategic acquisitions to expand operations. In Jun 2013, American Water Works Company (AWK - Snapshot Report) expanded its footprint in the western part of Pennsylvania by acquiring a municipal wastewater system in Beaver County. In the same month another water utility American States Water Company (AWR - Snapshot Report) decided to acquire Rural Water Co. which serves nearly 940 customers in Arroyo Grande, Calif.

We believe consolidation in a way will help the water utilities to generate incremental revenue and invest more towards the maintenance and development of old water systems.

Aqua America currently has a Zacks Rank #2 (Buy). Another operator in the industry with a favorable Zacks Rank #1 (Strong Buy) is Middlesex Water Co. (MSEX - Snapshot Report).

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