A look at 2023's major water acquisitions
In an era marked by burgeoning global populations, rapid urbanization, and the intensifying impacts of climate change, the water sector stands at the nexus of formidable challenges and unparalleled opportunities. The demand for clean and accessible water has never been more urgent, yet the sector grapples with issues such as water scarcity, deteriorating infrastructure, and pollution. As governments, businesses, and communities strive to navigate these challenges, a transformative landscape is emerging, offering innovative solutions and unprecedented prospects for sustainable water management. The intersection of environmental stewardship, technological innovation, and economic viability creates a dynamic space where water businesses play a pivotal role in addressing pressing issues while simultaneously tapping into new avenues for growth and resilience. In 2023 the water sector witnessed sizable mergers and acquisitions, reorganizing the water landscape and its players. In this article, we will primarily focus on the most significant takeovers in the United States and Europe and their consequent impact on the sector.
In September of 2023, 210 deals had been recorded during the first half of the year by the independent advisory firm Bluefield Research
In September of 2023, 210 deals had been recorded during the first half of the year by the independent advisory firm Bluefield Research, which although might seem like a high number, actually represents a 29 per cent decrease compared to the 294 deals recorded during the same period in 2022. This decline, Bluefield Research explained was due to: “the market, like others, being hobbled, by externalities including recession concerns, rising cost of capital, and general economic uncertainty during the first half of 2023.” The year began extremely quietly with the total number of approved acquisitions during H1 2023 being the lowest since 2019 but it picked up during Q2 with American Water and Central States Water Resources ramping up activity across their core service territories.
Not only was 2021 a year of a multitude of deals, but the transactions were of considerable sums, with Bluefield identifying 13 deals each topping US$1 billion
Looking back even further to 2021, we see a drastic drop in 2023 from the surge of water-related mergers and acquisitions during that year, with a total of 498 deals, according to Bluefield Research. Not only was 2021 a year of a multitude of deals, but the transactions were of considerable sums, with Bluefield identifying 13 deals each topping US$1 billion, compared to only three in 2020. Furthermore, the total value of disclosed deals reached $80 billion, up from $35 billion in 2020. According to Reese Tisdale, President & CEO of Bluefield Research, factors like a focus on environmental, social, and governance (ESG) practices, federal infrastructure legislation, and available investment capital contributed to this rise.
Although the number of alliances dropped significantly since 2021, several notable billion-dollar deals were closed in 2023. Let us take a close look at the first one: Xylem announced at the beginning of 2023 that it would acquire Evoqua, a leader in mission-critical water treatment solutions and services, in an all-stock transaction that reflected an implied enterprise value of approximately $7.5 billion.
The merger aimed to address global water challenges by combining Xylem's expertise in water solutions with Evoqua's advanced treatment capabilities. The combined company, generating over $7 billion in revenue, is expected to achieve cost synergies of $140 million within three years, Xylem stated in a press release.
The integration of the Evoqua acquisition led the US-based company to realign its reportable segments to reflect the operating drivers of financial performance with greater transparency; thus, from the 1st of January 2024, the new segment, Water Solutions and Services (WSS), integrated Evoqua’s legacy Integrated Solutions and Services (ISS) segment with Xylem’s legacy dewatering and assessment services businesses.
Another noteworthy merger took place at the end of March 2023, whereby Solenis, a global leader in specialty chemicals, announced it would acquire Diversey in an all-cash transaction valued at an enterprise value of approximately $4.6 billion. Upon completion of the merger, Diversey would become a private company.
Solenis announced it would acquire Diversey in an all-cash transaction valued at an enterprise value of approximately $4.6 billion
With the addition of Diversey’s cleaning and hygiene solutions, Solenis would provide several attractive cross-selling opportunities, including meeting increasing customer demand for water management, cleaning and hygiene solutions, according to Solenis CEO John Panichella. Later the same year, the firm also completed the acquisition of CedarChem, which would allow it to provide customers with improved chemical and wastewater treatment products and service offerings. The terms of the deal between the private companies, however, were not disclosed in the announcement.
The Japanese construction company Obayashi was one of many firms to set their eyes on the US water market in 2023, acquiring 90 per cent of MWH Constructors. A company that engages in the construction of water treatment facilities in the States previously owned by Oaktree Capital. The deal was worth €126 million (nearly US$138 million) and would allow Obayashi to fully develop its business in the water infrastructure construction market and enhance its corporate value by making MWH US a subsidiary.
The Japanese construction company Obayashi was one of many firms to set their eyes on the US water market in 2023, acquiring 90 per cent of MWH Constructors
Major water acquisitions in Europe
Europe was also witness to major acquisitions, including MIT-founded water and wastewater solutions unicorn Gradiant which successfully finalized its most significant purchase to date by acquiring a 51 per cent stake in Germany’s H+E Group (Hager+Elsässer). H+E Group is an established European water solutions provider with over 100 years of experience in providing end-to-end solutions to advanced manufacturing. This strategic move highlighted Gradiant's dedication to providing cutting-edge solutions for the semiconductor industry and most importantly, marked the company's initial presence in Europe.
According to a press statement, the announcement was part of a broader transaction in which SGF I and II had divested a controlling interest in Aquarion, a Switzerland-based industrial water and wastewater treatment company offering comprehensive solutions to various industrial sectors such as semiconductor, energy, food & beverage, and pharmaceuticals.
In 2023 Veolia continued to divest part of its activities as part of the Suez acquisition agreement
We cannot delve into the water market acquisitions in Europe without looking back to 2021 when Veolia and Suez, two French incumbents in the water and wastewater sector, led a fierce David and Goliath-sized battle which ended with the purchase of Suez by Veolia. In 2023, however, Veolia continued to divest part of its activities as part of the Suez acquisition agreement, with Italy's biggest gas distributor Italgas signing a deal worth more than 100 million euros with Veolia to buy the French utility's stakes in companies running water services in Lazio, Campania and Sicily. Moreover, Veolia additionally signed an agreement for the sale of SADE-CGTH, its wholly owned subsidiary specialising in the construction and rehabilitation of water and infrastructure networks, for a value of €260 million, to NGE, an independent public works group.
The year concluded with the prominent German digital-savvy Siemens also expanding its water industry portfolio by acquiring BuntPlanet, a Spanish technology company based in San Sebastian. The aim of the acquisition was to integrate BuntPlanet's cloud-hosted AI solutions for water utilities, including award-winning software for smart metering, water quality, and leak detection, Siemens' Xcelerator business platform. In this way, Siemens would provide its clients with a more comprehensive and integrated solution for managing water networks.
The acquisitions and mergers in 2023 have reshaped the industry, with notable trends observed in both the United States and Europe. While the number of deals decreased compared to 2022, several billion- and million-dollar transactions signalled tactical shifts within the market. These deals positioned companies strategically to thrive in an evolving landscape, combining environmental stewardship, technological innovation, and economic viability for a sustainable future, allowing them to provide new technologies and solutions for the present-day challenges the water sector is facing, including new contaminants, ageing infrastructure and a shortage of skilled water professionals. Now, it is time to redirect our focus to 2024 and what this year will bring in this domain.