Aqua America Inc. (WTR - Free Report) announced that commissioners of Sarasota County, Fla. yesterday agreed to go ahead with the purchase of the company’s water and wastewater operations in Sarasota. This will be the last of the five separate divestments carried out by Aqua America as part of its planned divestiture of its entire Florida assets.
The agreement is expected to be completed by late 2013 or at the start of the first quarter of 2014. The Sarasota asset sale will fetch Aqua America roughly $36.8 million. The company concluded the divestment of the other Florida operations in early 2013.
The proceeds from these divestitures will help Aqua America to continue its investments in modernization and technological innovation, which are imperative for the company to stay well positioned in the market. The company has already invested $134.9 million for upgrading its water infrastructure in the first half of 2013.
With the closure of the Sarasota sale, Aqua America’s core operational portfolio will be centered around eight states - Pennsylvania, Ohio, North Carolina, Illinois, Texas, New Jersey, Indiana and Virginia. All these operations enjoy economies of scale and will act as key growth drivers.
Water utilities like Aqua America are on the verge of a major transformation. With trying economic fundamentals, climate volatility and aging infrastructure issues, the need to revamp these utilities has become unavoidable.
Across America, water utilities are increasingly adopting the acquisition and partnership strategy to cope with rising operating costs and competition from conventional utilities. This explains Aqua America’s slew of asset purchases in 2013. The latest was the buyout of the water system of the Bristol Township, Pa. We believe asset consolidations via the inorganic route will remain an important growth path for Aqua America in the future.
However, water utilities still face financial crunch owing to budgetary constraints in the U.S. Indeed billions of dollars need to be spent in the coming years to update the age-old water infrastructure.
Aqua America currently carries a Zacks Rank #3 (Hold). Other water utilities looking good at the moment are Zacks Ranked #1 (Strong Buy) Connecticut Water Service Inc. (CTWS - Free Report) and Zacks Ranked #2 (Buy) Consolidated Water Co. Ltd. (CWCO - Free Report) and SJW Corp. (SJW - Free Report) .