Pennon Group Plc has announced the acquisition of Sumisho Osaka Gas Water UK Limited (SOGWUK), the holding company of Sutton and East Surrey Water plc (SES Water) and certain ancillary businesses, for 89 million from Sumitomo Corporation and Osaka Gas, with a total enterprise value of 380 million. The company also intends to issue new Ordinary Shares to raise up to 180 million in connection with the Acquisition. The acquisition is expected to ensure that the pro forma leverage and capital structure for the enlarged Group following the Acquisition remains consistent with Pennon's well-established water business gearing range of 55-65%.
The acquisition of SES Water and other ancillary businesses adds a high-quality business with over 750,000 customers and a forecast shadow Regulatory Capital Value ("RCV") of 351 million as of 31 March 2024. The purchase price of 89 million for the equity includes repayment to the vendors of 14 million of equity invested into SOGWUK since 31 March 2023. The enterprise value of 380 million is based on net debt of 291 million as of 31 March 2023. The enterprise value equates to a premium to SES Water 2023 RCV of approximately 6% and is expected to increase the Group's RCV by around 7% on Acquisition.
Susan Davy, Group Chief Executive, commented on the Acquisition, stating, "SES Water is a fantastic fit for Pennon as we further expand our presence in water supply across Southern England, building on our successful similar acquisitions of Bournemouth Water and Bristol Water alongside the adoption of water supply in the Isles of Scilly."
The Acquisition is already completed and will now be subject to review by the Competition and Markets Authority ("CMA"), with input from the Water Services Regulation Authority ("Ofwat"). The Acquisition is being financed from existing cash and financial resources, and the proceeds from the Equity Capital Raise will be used to ensure that the enlarged Pennon Group remains within the well-established water business gearing range of 55-65% following completion.
The Acquisition is expected to be earnings accretive from the first year of full ownership (2024/25) and to generate attractive returns while supporting further RCV growth in the 2020-2025 regulatory period ("K7"), bringing total expected growth over K7 for Pennon to 71%. The transaction is also anticipated to enable enhanced shareholder returns, driven by operational efficiency initiatives, lower financing costs, and economies of scale.
In conclusion, the acquisition of SES Water and other ancillary businesses is a strategic move by Pennon Group PLC to expand its presence in water supply across Southern England, adding a high-quality business with a significant customer base and forecasted RCV growth. The company aims to ensure that the pro forma leverage and capital structure for the enlarged Group remains consistent with its well-established water business gearing range.