Water investing: money on tap?

The gas, water and multi-utilities sector has found favour with investors that prioritise sable, defensive sectors over riskier ones such as retail. Staid, it would seem, is now sound.

Water companies have long blipped on private equity's radar screens - recall the swathe of infrastructure funds that flocked to the UK's providers just a couple years ago, prompting the outspoken Guy Hands to declare at a conference that "private equity would own all the UK's water companies by 2008". Alas the exuberant period that followed saw investors herd instead towards consumer sectors, making Hands' statement now seem premature. But it may yet happen.

In the last week, there have been reports that Canadian investor Ontario Teachers' is currently considering a whopping £1.7bn takeover bid for its existing portfolio company Northumbrian Water, prompting an almost 12% jump in the business' shares on Monday to 289.5 pence. The move is no doubt yet another way for the LP to bulk up its direct investing activities, but it could also signify a renewed interest in British water companies.

Reports earlier this week also suggested that Charterhouse Capital Partners was the favourite to win the £500m bid for United Utilities Contract Solutions (UUCS), the non-regulated business that belongs to United Utilities, the UK's largest listed water company. The sale, which is being run by JP Morgan Cazenove, has reportedly attracted interest from firms including 3i, Advent International and KKR. This would mean that two of the three listed UK water companies are attracting interest from private equity, a territory long-dominated by infrastructure investors because of these companies' long-term stable cashflows and regulatory framework.

This is because taking these utility companies private has become increasingly attractive in terms of returns, especially if an investor is able to secure affordable debt, something the last month has indicated could be a definite possibility this year as all of the major four buyouts in the last week of January involved loans from a club of banks.
Northumbrian provides 4.4 million customers with water in the northeast and southeast England, while UUCS provides metering, waste treatment and connections for utility companies. Charterhouse bought a similar company to UUCS back in 2007, when it acquired the German sub-metering and billing business ista International from CVC Capital Partners in a €2.4bn deal.

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• Topics
• GPs
• Investments
• Buyouts
• Infrastructure
• 3i
• Guy Hands
• Advent International
• Charterhouse Capital Partners
• KKR