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Water technology heavyweight Xylem makes $7.5bn move for rival Evoqua

Xylem, a “water technology” company with 17,300 employees globally, has agreed to buy NYSE-listed rival Evoqua in an all-stock deal that values Evoqua at $7.5 billion.

The deal will deliver cost synergies of $140 million within three years “driven by scale efficiencies in procurement, network optimization and corporate costs” Xylem said.

What does Xylem do?

Xylem describes itself as “enabling our customers to optimize water and resource management” through an expansive portfolio that includes water transport, treatment,and testing services, as well as smart metering, infrastructure assessment, digital software solutions for utilities, commercial and residential building services.

The deal, announced on January 23, is subject to shareholder and regulatory approval, but comes as investor interest in the water sector heightens amid troubling shortages of arguably the world’s single most precious and also abused resource.

EY India Technology Consulting Partner Alexy Thomas noted this month: “As the demand for water increases, organizations across the world are turning to technological solutions. New and emerging digital technologies including AI, IoT sensors, data analytics, smart water grids, and smart water management solutions are being used to build more efficient water management infrastructure, wastewater treatment plants, and irrigation systems. AI and accurate data analytics are also helping various organizations and governments manage hydrological issues.”

See also: Exclusive: SEB Strategy head expects investments in renewables to hit $600bn this year

xylem evoqua

Xylem has taken a bold approach to the market, including through making Limited Partner (LP) investments in VC funds Burnt Island Ventures and The Westly Group’s Funds III and IV that supporting the development of innovative water tech.

As Tom Ferguson, Founder of Burnt Island Ventures, and former VP of Imagine H2O, a water innovation accelerator for entrepreneurs, said in April in 2022 said Xylem was “an essential partner as we build the seed fund of choice for water entrepreneurs, globally. Their investment… is a reflection of how seriously the company takes the work of supporting the new frontier of water technology.” 

An ongoing ESG challenge for the company is helping the water industry tackle emissions. As Xylem’s Austin Alexander, VP of sustainability and social impact recently noted: “Water infrastructure represents 1.8% of global GHG emissions but represents 4.7% of global methane emissions. This is a problem – methane sets the pace for warming in the short term, holding triple the warming power of carbon dioxide over the first 20 years after it reaches the environment.”

“Solving the world’s water challenges has never been more urgent. Our acquisition of Evoqua creates a transformative global platform to address water scarcity, affordability and resilience at even greater scale,” said Patrick Decker, CEO of Xylem. “The combined company delivers an unparalleled portfolio of advanced technologies, integrated services and application expertise across the water cycle.”

Evoqua shareholders will receive 0.480 shares of Xylem for each Evoqua share; a value of $52.89 per share or a 29% premium based on Xylem and Evoqua closing prices on January 20. The transaction is anticipated to close in mid-2023 if meeting all approvals. Upon closing, Xylem shareholders will own approximately 75% and Evoqua shareholders will own approximately 25% of the combined company.

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