Utility Week

10 | 9TH - 15TH MARCH 2018 | UTILITY WEEK Policy & Regulation Analysis A ncala Partners may have missed out on purchasing Dee Valley Water last year, but the infrastructure invest- ment manager is set to secure its foothold in the UK's water sector with its acquisition of Portsmouth Water. The deal, which was announced on 20 February, is expected to complete later this month and will see Ancala acquire South Downs Capital, the parent company of the independent water-only ƒ rm. Portsmouth Water's price tag has not been disclosed by Ancala, but Utility Week understands the deal could be worth between £150-160 million. Industry experts suggest the water com- pany's regulatory capital value for 2017-18 is about £130-135 mil- lion, and based on a premium of around 20 per cent the ƒ gure would be close to the £160 million mark. Last year, Ancala entered into a bidding war with Severn Trent for Dee Valley but its o' er of £78.5 million fell short of Severn Trent's £84 mil- lion in the ƒ nal bidding round. Now just over a year later, Ancala has cause for celebration and says it is looking forward to supporting Portsmouth Water in continuing to "deliver on its strategy to be the best water company in the UK". Uncontested bid The purchase appears to have been a smooth process because this time around Ancala did not have to see o' competition from a rival bidder. Portsmouth Water has conƒ rmed to Utility Week that the water company was e' ectively "not up for sale" and "did not receive any interest from other parties". Neville Smith, managing director of Ports- mouth Water, says: "The current major share- holder was considering its options for the future and felt the business needed an owner who could provide long-term capital, but at the same time allow the company to retain its independence and a long-term view. "Ancala provides this and we believe shares the same values as Portsmouth Water. It is committed to delivering excel- lence for customers, employees and the environment." He adds: "The shareholder was satisƒ ed that Ancala met its criteria for the sale." The multi-million pound investment will allow Portsmouth to "pursue growth oppor- tunities", which Ancala hints could include investments to "utilise the company's privi- leged water resource position for the ben- eƒ t of both Portsmouth Water customers and neighbouring areas through the provision of bulk supplies". David Owens, industry partner at Ancala Partners and a former chief executive of Thames Water, will join the board of Ports- mouth Water as a non-executive director fol- lowing completion of the transaction. He says: "Portsmouth Water has a com- mitted and highly skilled workforce and management team. We look forward to working with them to build on Portsmouth Water's leading position in the sector and further improve their proposition to custom- ers. We fully support Portsmouth Water in its plans for future development of the business and we share the company's values and com- mitment to outstanding customer service." Portsmouth Water's chairman, Mike Kirk, describes the deal as a "positive develop- ment", which "preserves the company's independence". Speaking at the time of the acquisi- tion announcement Lee Mellor, a partner at Ancala, said: "Portsmouth Water is an excellent ƒ t with our core investment strat- egy, which targets mid-market infrastructure businesses that deliver long-term, in› ation- linked cash› ows. At a time when regulators are placing great focus on performance and eœ ciency, we are delighted to be acquir- ing one of the leading companies in the UK water sector." Ancala launched its mid-market infra- structure platform in 2015 and has more than €950 million in funds under management. Tim Power, a vice president at the com- pany, who has more than ten years of infra- structure and energy experience, tells Utility Week: "This is a great news story for Ports- mouth Water given that Ancala will stand behind the company as an independent locally-based and industry-leading water company." He says: "At the company announcement at Portsmouth's head oœ ce in Havant, sta' were visibly relieved to know their new owner is here for the long term and that not only would Ancala sup- port the business as it stands so suc- cessfully today, but that we would be there to continue challenging sta' to deliver the customer excel- lence the company is so well known for and to provide the capital for the business to grow its services where there is a customer need in the region." A few weeks prior to Ancala's acquisition, these very pages explored whether a tough PR19 price review, which is aiming to employ a record low weighted average cost of capital (Wacc), could be the trigger for water-only companies (WOCs) to be swallowed up. A buyer's market Utilities analyst Nigel Hawkins says it is "unusual to take out a water company in mid-periodic review", but he suggests Ofwat's recent conƒ rmation of a 2.4 per cent Wacc means "any bidder probably now knows the worst-case scenario". But, he sug- gests, "other WOCs may feel vulnerable". Meanwhile, Richard Khaldi, water sec- tor expert at PA Consulting Group, who previously worked as a senior director at Ofwat, says this news has taken the sector in "another direction". He says: "Following Bournemouth's acquisition by South West Water in 2016 commentators speculated how long the Portsmouth Water: a big deal? Ancala got outbid by Severn Trent for Dee Valley Water, but it found itself in a fi eld of one when chasing Portsmouth. Katey Pigden asks whether we can expect more WOCs to change hands. "Ancala's decision can be seen as a vote of confi dence by investors in the current regulatory regime." RICHARD KHALDI, WATER SECTOR EXPERT AT PA CONSULTING GROUP

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