By Lars Mucklejohn
Pennon Water has acquired Sutton and East Surrey (SES) Water and other ancillary businesses from its holding company for £89m to expand its operations across the country.
The total enterprise value of the deal is £380m based on a net debt of £291m.
SES Water, owned by Japanese firm Sumitomo and Osaka Gas, was one of four firms that Ofwat said in October needed to deliver a turnaround in their financial performance.
Privately-owned water companies in England and Wales are facing mounting criticism over leaks, pollution and poor infrastructure.
Pennon also announced its intention to issue a new £180m equity capital raise on the back of the takeover “in order to ensure that the pro forma leverage and capital structure for the enlarged group following the acquisition remains consistent with Pennon’s well-established water business gearing range of 55 to 65 per cent”.
The deal will add more than 750,000 customers to Pennon’s group and boost its regulatory capital value by seven per cent to an estimated £351m as of 31 March 2024.
Pennon said the takeover would further its existing water operations, following its previous acquisitions of two water firms, including Bristol Water in 2021.
SES Water customers will be given the chance to join Pennon’s WaterShare+ scheme, where customers are once a year offered the opportunity to become shareholders in the group. If they do not take the shares, they get the money off their next bill.
Pennon expected the deal to be earnings accretive from the first year of full ownership between 2024 and 2025, with a run rate of £11m per year.
Susan Davy, chief executive of Pennon, said: “The business is a proven, high-quality water operation. We are particularly impressed by the innovation and technology-led solutions implemented by SES Water.
“As part of the Pennon Group, we will enhance SES Water’s financial resilience and better position the business to serve its customers and all stakeholders, as has proven to be the case with our acquisitions of Bournemouth Water and Bristol Water.”
