Private Equity, Public Inequity: The Public Cost of Private Equity Takeovers of U.S. Water Infrastructure I nvestment bankers and other Wall Street players want to take over public water services 1 By 2012, 2 are 3 Growing Private Equity Appetite for Water 4 deals, including three privatizations, were on the horizon Pushing Privatization 6 loans that residents and businesses must repay through 7 Key Problems With Private Equity Takeovers Squeezing Dry: 9 Driving Up Public Costs: deals, they may use sneaky contract provisions and con- 10 structure projects or buy other systems to drive up water 11 Excessive Borrowing: COMMON RESOURCES
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Private Equity, Public Inequity:The Public Cost of Private Equity Takeovers of U.S. Water Infrastructure
Investment bankers and other Wall Street players want to take over public water services 1 By 2012,
2 are 3
Growing Private Equity Appetite for Water
4
deals, including three privatizations, were on the horizon
Pushing Privatization
6
loans that residents and businesses must repay through
7
Key Problems With Private Equity TakeoversSqueezing Dry:
9
Driving Up Public Costs:
deals, they may use sneaky contract provisions and con-10
structure projects or buy other systems to drive up water 11
Excessive Borrowing:
COMMONRESOURCES
12 Loans and other debt typically 13 Such
company goes bankrupt, governments may have to step in 14
Avoiding Taxes: - For example, in the last
-16
Cutting and Running:
17 -
--
19
Hiding Behind Closed Doors: -
inordinately complex ownership structures that can involve
20
-quirements, and private contractors are not subject to state sunshine laws requiring open meetings and public access
21
Conclusion-
-
-
Ten Major Private Equity Takeovers of U.S. Water and Sewer Services
YEAR PRIVATE EQUITY PLAYER VALUE TARGET
2006 AIG Highstar Capital II, LP (via Hydro Star, LLC)
$192.5 million (purchase price)
Utilities Inc., a private water company serving more than 300,000 water and sewer customers in 17 states25
2006BC Investment Management Corp. and CAI Capital Management (via 0745848 B.C. Ltd.)
$111 million (purchase price)
Terasen Water and Utility Services including 50% of Fairbanks Sewer & Water, Inc., a private water company serving Fairbanks, Alaska26
2007 Macquarie Bank (via Macquarie Utilities, Inc.)
$578 million (purchase price)
Aquarion Water Company, a private water company serving about 200,000 customers in Conn., Mass. and N.H.27
2008Alinda Capital Partners with PERC Water Corp. (via Santa Paula Water, LLC)
$62 million (est. capital investment)
Santa Paula, Calif., water recycling facility, privatization through a 30-year design-
28
2010
JPMorgan Investment Management and Water Asset Management investment funds (via SW Merger Acquisition Corp.)
$275 million (purchase price)
Southwest Water Company, a publicly traded water company serving more than a million people in nine states29
2011 Carlyle Infrastructure Partners (via Western Water Holdings)
$102 million (purchase price)
Park Water Company, a privately held water company serving more than 225,000 people in Mont. and Calif.30
Pending* Table Rock Capital (via Rialto Water Services)
$170 million (capital investment)
Rialto, Calif., water and sewer systems, privatization through a 30-year concession31
Pending*BC Investment Management Corp. and CAI Capital Management (via Corix)
UndisclosedUtilities, Inc., a private water company serving more than 290,000 customers in 15 states32
Pending* KKR with United Water (via Bayonne Water Joint Venture, LLC)
$150 million (upfront payment)
Bayonne Municipal Utilities Authority, N.J., water and sewer systems, privatization through a 40-year concession33
Pending*BC Investment Management Corp. and CAI Capital Management (via Corix)
$20 million (est. transaction value)
Lower Colorado River Authority, Texas, 18 to 20 water and sewer systems, privatiza-tion through a sale34
* Pending as of August 2012
Better Solutions Public-Public Partnerships: can instead explore public-public partnerships to reduce
-
-
pool resources, buying power and technical expertise to 22
private partnerships, these public sector partnerships are 23
Public Funding: --
-
lower local government borrowing costs and to appeal to a 24
ENDNOTES1 The
New York TimesInfrastructure Investor
Preqin Infrastructure SpotlightGlobal Water Intel-
ligence -Weekly Corporate Growth
Report -Bloomberg BusinessWeek
-Reuters Busi-
nessWeek
2 Preqin Infrastructure Spotlight
3
4
Reuters
6 The Wall Street Journal
-Northwestern
Journal of Law and Social Policy
Journal AWWA
-
-
Governing
7 Public Administration Review,
Bloomberg -
Taking Stock of PPP and PFI Around the World -
The Star-Ledger
-
Public Works Management & Policy
-
-
Public Works Management Policy
9
10 -
-
Public Administration
11 The American Economic Review
12
13
14
Private Sector & Development
The New Yorker
16
17
Journal AWWA -
Reuters
19 In the Matter
of the Consolidated Petition by Mountain Water Company for Declara-tory Rulings and Application for Approval of Sale and Transfer of Stock in Park Water Company
20 -
Globalization of Al-ternative Investments Working Papers Volume 1: The Global Economic Impact of Private Equity Report 2008 -
21 -
International Handbook on Public-Private Partnerships
-
Water Resources Development
Privatization of Water Services in the United States: An Assessment of Issues and Experience -
-Public Contract Law Journal
22 -
Water Alternatives-
23 -
Journal of Public Administration, Research and Theory