There has been a major acquisition in the Watertech business, with two related stocks moving in opposite directions.
shares of Evoqua Water (Aqua 12.97%) increased by 13.9%, xylem (XYL -9.33%) The stock plunged 11.7% after Xylem announced plans to acquire Evoqua in a deal worth about $7.5 billion.
Gone are the days when water was the norm. A major drought that has affected a significant portion of the western United States has drawn considerable attention to the stability of water supplies and has led more investors to focus on water resources.
On Monday, two major players in the business of using technology to minimize water scarcity announced they would join forces to create a stronger and more diverse company.
Under the terms of the transaction, Evoqua stockholders will be required to receive 0.48 shares of Xylem for each share of Evoqua stock they own, with a target valued at approximately $52.89 per share. That’s 29% higher than the price Evoqua closed on Friday.
After the transaction, Xylem shareholders will own approximately 75% of the combined company.
Xylem CEO Patrick Decker said in a statement:
Solving the world’s water problems has never been more urgent. Acquisition of Evoqua creates an innovative global platform to address water scarcity, affordability and resilience at even greater scale. The combined company offers an unmatched portfolio of advanced technology, integrated services and application expertise across the water cycle.
Together, Xylem and Evoqua generated more than $7 billion in revenue and $1.2 billion in adjusted EBITDA for the 12 months ended September 30.
Both companies believe they can recover more than $140 million in costs within three years, and should improve margins over time. Xylem also maintains considerable balance sheet flexibility when trading all its stocks, allowing the company to become an opportunistic acquirer should sector consolidation heat up.
These companies expand the range of products and services they offer, but at heart they are both in the water treatment and purification business to help end-users get the most out of the water they own. . In a world plagued by drought and increasing water uncertainty, there should be ample opportunity for these businesses to grow over the long term.
Lou Whiteman has no positions in any of the stocks mentioned. The Motley Fool has no positions in any of the companies mentioned. The Motley Fool’s U.S. headquarters has a disclosure policy.