Schuller expects similar transactions in the market as sector convergence creates new opportunities and challenges in dealmaking. “Companies have discovered that the regulatory expertise, the capital investment expertise, and the similarities in business models trump the differences in commodities.”
As convergence accelerates, the boundaries between sectors become blurred, and consolidation of ownership becomes more concentrated.
“With less than two-thirds the number of publicly traded utilities in the US as existed two decades ago, we expect the trend toward consolidation to continue. Within that, we believe that cross-sector combinations will be more prevalent.”
Despite the recent focus on expanding into new sectors, Aqua is still keenly focused on the water sector and expects changes in regulation to facilitate greater traditional M&A.
“Peoples is our large strategic acquisition for the foreseeable future, but we’ll continue to pursue municipal transactions,” says Schuller.
He says the merged company is anticipated to result in a strong balance sheet and investment-grade credit ratings, which are expected to fuel future growth.
A number of states have implemented Fair Market Value legislation to promote consolidation of smaller water systems by allowing buyers to recover through rates the full purchase price of the assets rather than the depreciated book value. In addition, there is the potential for new legislation that is meant to hold all utility owners to the same standards with respect to testing, routine maintenance, asset management and cybersecurity.
“The Fair Market Value legislation, which allows us to put purchase price into our rate base, has helped to increase the number of municipalities considering system sales, and we wouldn’t want to be left out of that growth opportunity. We have added US$100m in rate base through these acquisitions in 2018 and have US$100m in deals set to close this year,” explains Schuller.
“Now, as we integrate Peoples and focus our management on capital investments, we’ll continue to pursue more municipal water and wastewater acquisitions across our footprint of Pennsylvania, Ohio, North Carolina, Illinois, Texas, New Jersey, Indiana and Virginia.
“We expect to see the water industry pursue other types of legislation that facilitate municipal system sales, because as an industry, we believe we can provide an important solution to many municipal systems that have difficulty addressing the capital needs of the utility or would prefer to allocate proceeds from a sale of the utility to other important community priorities.”
This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. There are important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements, including the factors discussed in Aqua America, Inc.’s Annual Report on Form 10-K and its Quarterly Report on Form 10-Q, which is filed with the Securities and Exchange Commission. For more information regarding risks and uncertainties associated with Aqua America's business, please refer to Aqua America Inc.’s annual, quarterly and other SEC filings. Aqua America, Inc. is not under any obligation – and expressly disclaims any such obligation – to update or alter its forward-looking statements whether as a result of new information, future events or otherwise.