Control of Bristol Water has passed to Capstone, the Canadian infrastructure fund, which has paid £133m (C$216m) for a controlling stake in a deal which values the company at £282m including debt. It is the fund's first investment in the UK.
But the price paid appears to be well below earlier estimates of how much the utility would fetch and follows a £15m slump in pre-tax profits from £23.1m to £7.6m in June.
It was at about this time that the company was put up for sale by its Spanish owner Agbar which is controlled by French utility Suez Environnement. Citigroup was called in to help sell it by auction for a figure then expected to be around £400m. Agbar paid £362m five years ago and, despite tight control by the Competition Commission, the auction sparked interest among investors looking for slow and steady returns.
Agbar will retain a 30% stake and has signed a deal with Capstone to provide advice on trends and operation innovations in the industry.
Capstone beat other bidders including M&G’s infrastructure fund as well as Japanese funds Marubeni and Itochu. Macquarie Capital, which advised Capstone on the transaction along with Allen & Overy and KPMG, provided a £93m (C$150m) debt facility to fund the deal.
Analysts at Deutsche Bank say the transaction implies a mid-to high premium of 20% to the company's regulated asset value, in line with previous transactions but well above where the listed sector was trading. “For Suez Environnement, the transaction represents an attractive exit price and strengthens the company’s balance sheet,” the bank's analysts said in a note.
Capstone president and chief executive said: “Bristol Water is an established, core infrastructure business with regulated and predictable inflation-linked cash flow and a strong growth profile in a stable OECD country, making it an ideal complement to our existing portfolio.
“This is a platform investment that builds on our international footprint, diversifies our portfolio by infrastructure category and is expected to contribute to the long-term sustainability of our dividends to shareholders.”
The Canadians see water as an attractive sector because of its low risk and high growth with returns higher than could be achieved in Canada.
Meanwhile a utilities analyst at Evolution said the deal multiple at 1.3 times Bristol’s RAV (return on regulated asset value) was comparable to that agreed for Northumbrian Water by Cheung Kong Infrastructure in August which gave that much larger water company an asset value of £4.75bn.
Other water companies such as Severn Trent, United Utilities and Pennon trade on multiples of 1.1 or just above their RAV.
