Xylem, a leading water technology company, has announced its acquisition of Evoqua Water Technologies, marking a significant development in the water business. The all-stock merger deal is valued at approximately $7.5 billion.
Under the terms of the merger, Evoqua shareholders will receive 0.48 shares of Xylem for each Evoqua share, amounting to a value of $52.89 per share. This represents a 29% premium based on the closing prices of both companies on Friday, as confirmed by Xylem.
The valuation of Evoqua at around 22 times estimated calendar year earnings before interest, taxes, depreciation, and amortization (Ebitda) showcases its excellent growth potential. While industrial stocks typically trade for 12 to 14 times estimated Ebitda in the S&P 500, water-related stocks like Evoqua often command a higher premium due to their scarcity in the market.
Raymond James analyst Pavel Molchanov, however, expresses concern regarding the high price paid for the merger, stating that Xylem may have overspent in this deal. He highlights the substantial benefits that Evoqua shareholders are set to receive while suggesting that Xylem’s shareholders may not see the same level of excitement.
Following the announcement, Xylem’s stock experienced a decline of 10.2% to $98.95 per share, whereas Evoqua shares saw an increase of 11.4% to $45.68.
This significant deal does come at a cost, which contributes to the weakness in Xylem’s stock value. It is worth noting that some downward pressure on stock value is expected in all-stock deals due to arbitrage trading.
Transforming the Water Industry: Xylem’s Acquisition of Evoqua
In a bold move, Xylem, a global leader in the water industry, has announced its acquisition of Evoqua through an all-stock deal. This strategic move aims to tackle the pressing challenges of water scarcity, affordability, and resilience on a larger scale. Under the leadership of Xylem’s CEO, Patrick Decker, the merged company will pioneer innovative solutions in the water sector.
With Xylem shareholders owning approximately 75% of the combined company, the merger is set to create a powerhouse in the industry. Both Xylem and Evoqua are major players in water-related businesses. Xylem specializes in manufacturing pumps, valves, filters, meters, and more, while Evoqua has a strong presence in water and wastewater treatment.
The synergy resulting from this merger is evident. By combining their expertise and resources, the two companies can maximize efficiency and generate significant benefits. Management expects annual synergies to reach an impressive $140 million within three years. Furthermore, the merged company is projected to achieve approximately $7 billion in annual sales.
Amidst this development, Evoqua’s stock has shown promising growth over the past year, with a 5% increase, while Xylem also observed a notable 3% rise. In contrast, the S&P 500 experienced a decline of about 10% during the same period.
Experts have positively reviewed Evoqua’s performance, particularly noting its potential when shares were valued at around $33 each in July 2021.
This acquisition demonstrates Xylem’s dedication to shaping a more sustainable future in the face of global water challenges. With its transformative global platform and commitment to addressing water scarcity, affordability, and resilience, Xylem is poised to make a lasting impact in the water industry.
