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Amid a flood of deals in the water industry, AEA Investors-backed Evoqua Water Technologies may evaluate a dual-track exit in 2017, six sector advisors said. The private equity firm acquired parts of Siemens’ (ETR:SIE) water business in 2014 for USD 865m and renamed it Evoqua. The Warrendale, Pennsylvania-based company provides water filtration and wastewater treatment solutions and products. A spokesperson for Evoqua declined to comment. AEA did not respond to requests for comment. The speculation comes as General Electric [NYSE:GE] has announced plans to sell its water segment and follows the USD 1.7bn acquisition by Xylem [NYSE:XYL] of smart meter manufacturer Sensus in August. Water utilities and industrial water players are trading well, buttressing the prospects that Evoqua will look to an IPO in 2017. Two of the advisers highlighted the recent IPO of AquaVenture [NYSE:WAAS], which priced well above the offering range. The company provides water-as-a-service solutions that provide its customers with a reliable and cost-effective source of clean drinking and processed water primarily under long-term contracts that minimize capital investment by the customer. Public market comparables include Xylem, which is currently trading at about 15x EBITDA. Other water services players in the space include Suez Environnement [EPA: SEV] and Veolia Environnement [OTC: VEOEY], said another advisor. Comps could also potentially be drawn from water utilities players, said the first advisor and a fourth advisor, naming Aqua America [NYSE:WTR], American Water Works [NYSE:AWK] and Connecticut Water Service [NASDAQ:CTWS]. The fourth advisor also listed Energy Recovery [NASDAQ:ERII], California Water Service [NYSE:CWT], and SJW [NYSE:SJW] among the potential comps. Evoqua’s municipal services business has designed, manufactured, and distributed products for chemical generation and odor control for more than 30 years. In the event of a sale, Evoqua could sell for an EBITDA multiple of between 12x and 15x, in part given the scarcity of sizable water assets available to buy, said the third sector adviser. Given the company’s large size, the third advisor said finding logical strategics could be a challenge. Pentair [NYSE:PENT] is likely to be focused on its core business rather than M&A amid pressure from activist investor Trian Partners. In September 2015, Trian and Pentair reached an agreement to appoint an executive at the activist to the board.
On its 3Q16 earnings call in October, Randall Hogan said Pentair would be disciplined about M&A, and cautioned that when there is a lot of activity, prices tend to go up. Meanwhile, given Xylem’s recent acquisition of Sensus, it will likely put its M&A activity on the sidelines for now. On Xylem’s 3Q16 earnings call this month, executives said it is in no rush for further deals. The other two Evoqua bidders that would have been logical, Siemens and Veolia, are former owners of the Evoqua business. Siemens entered the water business in 2004 when it acquired US Filter from Veolia for USD 993m. Danaher [NYSE:DHR] could look at Evoqua, the third advisor said. Danaher was also reported by this news service as a potential suitor for GE Water. Evoqua’s services range from activated carbon, reverse osmosis, and mobile water solutions to membrane ultrafiltration and biological wastewater treatment for industrial water, drinking water and municipal wastewater treatment, according to its website. Goldman Sachs advised Siemens on the Evoqua sale to AEA. Credit Suisse provided financing to the financial sponsor.
by Marlene Givant Star, Harry Brumpton and Sam Weisberg in New York
As seen in the mergermarket newsletter on 10/11/2016