Aqua America (WTR - Free Report) announced that its subsidiary, Aqua Pennsylvania, has reached a joint settlement agreement to buy the wastewater assets of Limerick Township. If the agreement is approved by the Pennsylvania Public Utility Commission, it will add nearly 5,400 wastewater customers to Aqua America’s customer base.
Aqua America has been expanding its customer base through acquisitions, partnerships and organic growth. In 2017, the company was able to add 10,854 new connections through organic growth and acquisitions. Aqua America further expects to add 16,325 new connections in 2018 through acquisitions, out of which 2,259 customers are already added in the first quarter through three completed acquisitions.
Aqua Pennsylvania already invested in multiple projects to improve quality and reliability of its water and wastewater services in the state. The new customers who will join the 1.4 million people the company already serves in Pennsylvania will get the benefits from the new projects.
Consolidation Will Help the Water Space
Water and wastewater operation is highly fragmented in the United States, and a large number of operators are serving only a few hundred customers. It becomes very difficult for these small operators or municipalities to make large investments to upgrade and expand their water and wastewater infrastructure.
It is easier for large companies to make arrangement for funds to carry out these major overhauls. Consolidation would therefore drive the necessary infrastructure overhauls that have become imperative for the industry at large.
American Water Works (AWK - Free Report) is one of the largest water and wastewater service providers in the United States, and continues to widen its market footprint through strategic acquisitions. During the first four months of 2018, the company added 3,689 customers through five completed acquisitions and nearly 1,500 via organic initiatives.
Rising Interest in the Water Space
The water utility industry offers excellent growth opportunities and as a consequence, we are noticing a rising interest in this space, shown by companies that were earlier focused primarily on other businesses.
On Mar 15, 2018, Connecticut Water Service received an offer from SJW Group (SJW - Free Report) to merge with the latter. This deal announcement has awakened a lot of interest in the water utility space and both the parties received bids for takeover from different companies.
Connecticut Water Service received an offer from Eversource Energy (ES - Free Report) , while SJW Group received a bid from California Water Service Group (CWT - Free Report) . Despite the new offer, management of Connecticut Water Service and SJW Group remained committed to the original arrangement and both rejected the subsequent offers.
Recently, Connecticut Water Service and SJW Group announced an amendment in their merger agreement. This amendment includes a new go-shop provision that will allow Connecticut Water to explore offers of an alternative merger, acquisition or other strategic transaction. (Read more: Connecticut Water Amends Merger Covenant, Open to New Offer)
In a year’s time, shares of Aqua America have lost 0.6%, narrower than its industry’s decline of 4.2%.
Currently, Aqua America has a Zacks Rank #4 (Sell).
You can seethe complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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