American Water Works Company (AWK), a large publicly traded US water and wastewater utility company, is to sell its Homeowner Services Group to funds advised by Apax in a deal valued at approximately USD1.275 billion.
Upon closing of the transaction, American Water will receive USD480 million in cash and a USD720 million secured Seller’s Note bearing a 7 per cent annual interest rate with a five-year term. In addition, the transaction includes a delayed payment to American Water of USD75 million if certain milestones are met by 31 December, 2023. The structure of the transaction enables initial cash proceeds to be redeployed into the regulated water and wastewater business to fund near-term incremental capital investments, while interest on the Seller’s Note will provide a stream of earnings over the term of the note. Upon maturity, the proceeds from the repayment of the Seller’s Note are expected to be used to fund a continually growing capital investment in the regulated business.
“American Water has successfully grown our Homeowner Services Group over the last 20 years, creating great value,” says Walter Lynch, President and CEO of American Water. “This transaction allows us to capitalise on that value creation by utilising the proceeds to invest in our regulated businesses. As we have continuously communicated, our strategy is to operate where we can best serve customers, drive efficiencies, invest in our systems and grow our regulated water and wastewater businesses,” adds Lynch. “We look forward to outlining the transaction further, as we discuss our long-term financial plan at our next virtual investor day on 3 November, 2021.”
Homeowner Services Group’s customer facing brands include American Water Resources and Pivotal Home Solutions, which provide various warranty protection programs and other home services to residential customers across the country. This business currently has nearly three million customer contracts across 43 states and Washington, DC.
“We believe Apax will take the growing Homeowner Services business into its next chapter and employees will transfer as part of the deal and have the opportunity to continue to add value to customers,” adds Lynch.
Ashish Karandikar, Partner at Apax, says: “Having tracked the home warranty sector, we identified American Water Resources as a stand-out provider in the space. The Apax Funds have deep domain experience across the home services market and insurance and warranty product dynamics, with prior investments in Authority Brands, Assured Partners and Hub for example. We are excited to partner with the team at American Water Resources as we look to build on the Homeowner Services Group’s success to date, leveraging the Apax Funds’ transformational approach, hands-on operational excellence, and deep digital expertise to support the company going forward.”
American Water will also enter into a revenue sharing agreement that provides for American Water to receive a percentage of revenue generated from previous on-bill billing arrangements with American Water customers. This agreement will also provide an ongoing income stream as Apax continues these relationships.
American Water anticipates closing the transaction in the fourth quarter of 2021, subject to the satisfaction or waiver of customary closing conditions, including the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
American Water was exclusively advised by BofA Securities, Schulte Roth & Zabel LLP and Shearman & Sterling LLP.
