KKR, Apollo interested in £5bn UK water utility

US buyout firms Kohlberg Kravis Roberts and Apollo Management are eyeing a £5bn bid for Severn Trent, a UK water and waste management business.

A private equity group, including Kohlberg Kravis Roberts and Apollo Management, two US buyout firms, are considering launching a £5 billion (€7.3 billion) bid for Severn Trent, a UK water company.
The Business, a UK weekly newspaper, reported yesterday that the group aims to buy Severn Trent before it carries out an initial public offering of Biffa, a UK waste management subsidiary, which is expected to float before the end of the year for approximately £1.5 billion.
PAI Partners, BC Partners, Cinven and CVC Capital, four European buyout groups, are also understood to have shown an interest in Severn Trent, which provides water and sewerage services to over eight million households and businesses in the UK. The company said that it has not received a formal offer.
Severn Trent’s share price was up this morning on the back of takeover speculation. The company’s share price was trading at 1,323 pence at 10.30am BST, up from Friday’s closing price of 1,273 pence. A share price of 1,323 pence gives Severn Trent a valuation of approximately £4.57 billion.
The report said that KKR and Apollo Management turned their attention to Severn Trent after pulling out of the auction for Thames Water, which is expected to be sold by German energy group RWE for more than £8 billion. Guy Hands’ Terra Firma Capital Partners, backed by Citigroup, Morgan Stanley and Merrill Lynch, is reported to be considering a bid for Thames.
Waste and environmental management companies are attractive assets for private equity firms, including Terra Firma. In mid-July, Terra Firma sold the waste disposal unit of Waste Recycling Group to Fomento de Construcciones y Contratas (FCC), a Spanish construction group, for £1.4 billion, but held on to its renewable energy business.
In June, KKR bought the waste management businesses of Australia’s Brambles Industries, a support services group, for A$1.83 billion (€1.09 billion). In its first Australian buyout, KKR bought the Australian and New Zealand businesses of Cleanaway, a waste management operator, and Brambles Industrial Services Australia, a support services provider. The US buyout firm beat off competition from CVC Asia and Ironbridge Capital, CHAMP Private Equity and CCMP Private Capital Asia.