Pennon Group announces £89m acquisition of Sumisho Osaka Gas Water UK

Pennon Group plc, a renowned entity in the water industry, is pleased to announce a significant acquisition, having acquired 100% of the issued capital of Sumisho Osaka Gas Water UK Limited (“SOGWUK”). SOGWUK is the holding company of Sutton and East Surrey Water plc (“SES Water”) and various ancillary businesses. The deal, valued at £380 million, involved a purchase price of £89 million from Sumitomo Corporation and Osaka Gas.

Key Highlights of the Acquisition

The acquisition of SES Water, a high-quality business serving over 750,000 customers, is a major addition to Pennon Group’s portfolio. The deal includes the enterprise value of £380 million based on net debt of £291 million as of 31 March 2023. This acquisition is significant as it represents a premium to SES Water’s 2023 Regulatory Capital Value (RCV) of approximately 6% after adjustments. It is expected to enhance the Group’s RCV by about 7% upon completion.

Expansion and Financial Strategy

To facilitate this acquisition, Pennon Group also announces its intention to issue new Ordinary Shares to raise up to £180 million in an Equity Capital Raise. This strategic move is intended to maintain the pro forma leverage and capital structure of the enlarged group within Pennon’s established water business gearing range of 55-65%.

Susan Davy, Group Chief Executive of Pennon, commented on the acquisition, emphasizing SES Water’s excellent fit with Pennon’s expanding presence in Southern England. She highlighted the innovation and technology-led solutions of SES Water and Pennon’s commitment to enhancing SES Water’s financial resilience and customer service.

Financing and Future Prospects

The completion of the acquisition, which is not subject to any conditions, has already occurred. However, it will now undergo a review by the Competition and Markets Authority (CMA) and the Water Services Regulation Authority (Ofwat). Pennon anticipates a favorable decision from the CMA within standard timescales. The acquisition is financed through existing cash and financial resources, and the Equity Capital Raise proceeds will be used to maintain Pennon’s financial stability post-acquisition.

Impact on Customers and Stakeholders

This acquisition is expected to bring several benefits to SES Water’s customers and stakeholders. Customers will be offered the chance to participate in Pennon’s unique WaterShare+ customer shareholding scheme. Pennon anticipates the acquisition to be earnings accretive from the first year of full ownership and to support further RCV growth.

In conclusion, Pennon Group’s acquisition of SES Water marks a significant development in the UK water industry, promising enhanced services for customers and value creation for shareholders. With this strategic move, Pennon Group solidifies its position as a leader in the water supply sector in Southern England.