American Water's Arm To Acquire Steelton Borough Water System
Zacks Investment Research | Nov 15, 2018 09:11PM ET
American Water Works Company (NYSE:AWK) announced that its unit, Pennsylvania American Water, has entered into an agreement to acquire the water assets of the Steelton Borough Authority in Dauphin County. This acquisition will cost $22.5 million and add nearly 2,400 metered residential, commercial and large industrial connections.
Pennsylvania American Water, through its existing distribution network, serves nearly 2.4 million people in Pennsylvania. The said acquisition will expand its existing customer base and allow the company to render quality services to new customers at a reasonable cost.
Post completion of the acquisition, Pennsylvania American Water has plans to invest nearly $36 million to improve Steelton’s water system over the next 10 years.
Aging Water Infrastructure Calls for Consolidation
The existing water infrastructure in the United States is aging, and proper maintenance and upgradation of the system will require investment of billions of dollars, which becomes difficult for small water utilities to make arrangement for.
A study from Utah State University showed that overall water main break over the past 6-year period has gone up 27% in the United States and Canada. The primary reasons behind water main failure are the aging water infrastructure and higher failure rates of smaller water utilities compared with larger ones.
Therefore, through the acquisition of small utilities, it becomes easier for large companies to make arrangement for funds to carry out these major overhauls. American Water is one of the most active players, which continues to widen its market reach through acquisitions. Till September 2018, the company added 7,600 new customers through buyouts and 8,900 via organic growth. The pending acquisitions, on completion, are expected to add nearly 56,000 customers to its customer base.
American Water in not the only water utility that is actively pursuing an inorganic growth strategy. We can also notice other active water utilities like Global Water Resources, Inc. (NASDAQ:GWRS) and Aqua America (NYSE:WTR) to pursue acquisitions.
Price Movement
In the past six months, shares of American Water have gained 14.6% compared with the Zacks Investment Research
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