Macquarie AM partners to buy UK wastewater service provider

A consortium led by Macquarie Asset Management (MAM) will invest an additional £655 million, bringing the total equity investment by MAM-managed funds and co-investors to nearly £3 billion, into Southern Water, a UK water and wastewater service provider.

Macquarie Group is the majority owner of the utility company.

In addition to the £655 million, the consortium has the option to provide a further £545 million, totalling up to £1.2 billion.

The investment will help fund Southern Water's investment program in the 2025 and 2030 regulatory period, which will see around £4000 per household of investment in the water and wastewater network and services.

It will also help steer Southern Water's turnaround plan, which has made good progress including a ~40% reduction in pollution incidents, a ~80% reduction in customer complaints, and other areas such as water leakage and sewer flooding which are now top quartile.

MAM has separately supported Southern Water in reducing its legacy holding debt, improving financial resilience in response to the credit rating downgrades of the UK water framework in recent months, MAM said.

Since acquisition in 2021, MAM-managed funds and co-investors have already injected £1.65 billion, inclusive of current and potential investments, the total equity commitments would be up to £2.85 billion.

MAM senior managing director Martin Bradley said despite Southern Water making significant improvements through a challenging period before its takeover, adversity remains with increased demands from climate change, population growth and regulatory targets.

"The new management team, largely put in place since 2021, has created a positive culture focused entirely on building a better company to rise to the unique challenges and demands facing the region," Bradley said.

"With the help of our investors' capital, Southern Water will have the financial resources to maintain its positive momentum. While it's been a difficult time to raise private sector capital for a UK water company, we are aligned with the Government's ambition to reform the sector and are encouraged by the desire to achieve the reset required to effect real long-term change.

Bradley added that Southern Water's initiatives are progressing soundly.

"Southern Water's business plan reflects the ambitions of its customers and other stakeholders. Its investment program for 2025-30 is double the 2020-25 period... This will deliver additional capacity and improved resilience of water and waste-water services, help reduce water abstraction from local rivers and support economic and population growth in the region," Bradley added.

"It will also start to retrofit the legacy sewer system to significantly reduce storm overflows caused by rain run-off from urban areas, highways, and agriculture.

"Whilst an investment program of this scale will inevitably face some challenges, we believe it will create real benefits, felt by communities."