American Water to sell Homeowner Services to funds advised by Apax Partners for $1.275B

American Water announced Friday that it will sell its Homeowner Services Group to funds advised by Apax in a deal valued at approximately $1.275 billion. The transaction is expected to be complete in the last quarter of 2021.

At the close, American Water is expected to receive $480 million in cash and a $720 million secured Seller’s Note bearing a 7% annual interest rate with a five-year term.

The transaction also includes a delayed payment to American Water of $75 million if certain milestones are met by Dec. 31, 2023.

The structure of the transaction enables initial cash proceeds to be redeployed into the regulated water and wastewater business to fund near-term incremental capital investments, while interest on the Seller’s Note will provide a stream of earnings over the term of the note.

Upon maturity, the proceeds from the repayment of the Seller’s Note are expected to be used to fund a continually growing capital investment in the regulated business.

“American Water has successfully grown our Homeowner Services Group over the last 20 years, creating great value.” said Walter Lynch, CEO and president of American Water. “This transaction allows us to capitalize on that value creation by utilizing the proceeds to invest in our regulated businesses. As we have continuously communicated, our strategy is to operate where we can best serve customers, drive efficiencies, invest in our systems and grow our regulated water and wastewater businesses. We look forward to outlining the transaction further, as we discuss our long-term financial plan at our next virtual investor day on Nov. 3.”

Homeowner Services Group’s customer-facing brands include American Water Resources and Pivotal Home Solutions, which provide various warranty protection programs and other home services to residential customers across the country. This business currently has nearly 3 million customer contracts across 43 states and Washington, D.C.

American Water was exclusively advised by BofA Securities, Schulte Roth & Zabel LLP and Shearman & Sterling LLP.