Aqua America Inc.
) has taken the inorganic route to enhance its operations. This
water utility has acquired seven water and wastewater utility
systems in the first half of 2013. In North Carolina and
Pennsylvania the company acquired three utilities each and one in
Virginia. These acquisitions will allow Aqua America to further
enhance its operation.
The water utility market in the U.S. is quite fragmented. Large
operators like Aqua America find it easier to expand their
footprint via strategic acquisitions. In 2012 the company made 18
acquisitions and a similar trend is noticed in 2013 as well.
We believe consolidation among the water utilities will remove
overlapping overhead operating expenses and allow the companies
to concentrate more on the development and maintenance of
infrastructure. The water utility infrastructure in the U.S. is
aging and unless a concerted effort is made the continuous supply
of clean water might be disrupted.
A report from Economic Development Research Group Inc. suggests
an alarming gap between the water infrastructural requirement and
actual investments planned for the coming years. The gap is
expected to reach $84 billion in 2020 and widen to $144 billion
in 2040. The report also revealed that without proper renewal or
replacement, nearly 44% of the existing pipelines will become too
poor for operation by 2020.
Other water utilities are also making strategic acquisitions to
expand operations. In Jun 2013,
American Water Works Company
) expanded its footprint in the western part of Pennsylvania by
acquiring a municipal wastewater system in Beaver County. In the
same month another water utility
American States Water Company
) decided to acquire Rural Water Co. which serves nearly 940
customers in Arroyo Grande, Calif.
We believe consolidation in a way will help the water utilities
to generate incremental revenue and invest more towards the
maintenance and development of old water systems.
Aqua America currently has a Zacks Rank #2 (Buy). Another
operator in the industry with a favorable Zacks Rank #1 (Strong
Middlesex Water Co.
AMER WATER WORK (AWK): Free Stock Analysis
AMER STATES WTR (AWR): Free Stock Analysis
MIDDLESEX WATER (MSEX): Free Stock Analysis
AQUA AMER INC (WTR): Free Stock Analysis
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