Water acquisitions set to continue after Dee Valley deal

Further acquisitions are likely to follow Severn Trent’s purchase of Dee Valley Water, consulting firm Frost and Sullivan has predicted.

“The number of water-only companies has already decreased from 10 to 8 over the last couple of years, with the purchase of Bournemouth Water by South West Water and Severn Trent purchasing Dee Valley,” said vice president of environment and water, Frederick Royan.

“We expect this trend to continue as there still exist opportunities for consolidation in the UK water utility industry.”

He pointed out that the UK water utility marketplace is set to witness a “significant change” in April 2017 with the opening of the retail market.

This, he added, has presented an opportunity for water and wastewater service companies, such as Severn Trent, to explore opportunities of consolidation in the UK market, with water only companies in neighbouring regions being of high interest and prospect.

“For instance, in 2015, South West Water (SWW) announced its plans to acquire Bournemouth Water, which again allowed SWW to consolidate its stature in the region with the acquisition of a neighbouring water only utility and integrating its assets and resources with the aim of capitalising on the efficiency gains,” Royan said.

Severn Trent announced on Wednesday (16 November) that it would buy Dee Valley, in a deal worth £78.5 million. It said the water-only was a “natural fit”, as it operates in neighbouring areas in England and Wales.

Severn Trent will pay 1,705 pence in cash per share for Dee Valley, which supplies approximately 62 million litres per day to more than 258,000 customers.

On the morning of the announcement, shares in Dee Valley shot up from 1,530 pence the previous close, to 1,684 pence. The price has remained high since, with shares trading at 1,691 pence at the time this article was published.