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California Water (CWT) to Buy Skylonda Mutual Water's Assets

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California Water Service Group’s CWT unit California Water Service inked a deal to acquire the water system assets of Skylonda Mutual Water Company. The deal is expected to close in 2022 and is subject to the approval of the California Public Utilities Commission.

Following the closure of the agreement, the subsidiary will provide water services to Skylonda Mutual Water Company’s customers through the Bear Gulch District where the buyer's water lines run parallel to the seller’s 176 customer connections. The unit will invest in Skylonda’s water system infrastructure to maintain and upgrade its services as well as to enhance the reliability of the same.

Prior to this, California Water’s another unit Hawaii Water Service received necessary permission from The Hawaii Public Utilities Commission to acquire the assets of Kapalua Water Company and Kapalua Waste Treatment Company from Maui Land and Pineapple Company (ML&P).

Need for Acquisition in Water Space

Delay in revamping the pipelines could result in loss of water on a daily basis and pipeline cracks might increase the possibility of potable water contamination. Per the Water and Wastewater Equipment Manufacturers Association, an estimated investment of $750 billion is needed to meet demand over the next 20 years. Notably, the company invested $298.7 million in 2020, up from $273.8 million in 2019. Its capital estimates for 2021 are $270-$300 million.

The aging U.S. water and wastewater infrastructure requires bulk expenditure to ensure 24x7 supply of drinkable water and continuous wastewater services. While small water utilities find it difficult to invest huge amounts in improving, maintaining or repairing their facilities, consolidation makes it easier for the big operators with ample financial strength to make necessary investments in uplifting the water and wastewater infrastructure.

Hence, large water utilities are actively acquiring small water and wastewater service units as well as ensuring a heavy capex to upgrade their quality of services. American Water Works Company AWK is active in buying small service providers. Global Water Resources, Inc. GWRS is also walking the inorganic route to expand operations in the United States. Another water utility Essential Utilities WTRG not only expanded its water and wastewater operations through integrations but also ventured into the natural gas distribution business via the purchase of PeoplesGas.

Zacks Rank & Price Performance

Shares of this currently Zacks Rank #3 (Hold) utility have gained 0.7% in the past three months against the industry’s fall of 7.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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American Water Works Company, Inc. (AWK) : Free Stock Analysis Report

California Water Service Group (CWT) : Free Stock Analysis Report

Global Water Resources, Inc. (GWRS) : Free Stock Analysis Report

Essential Utilities Inc. (WTRG) : Free Stock Analysis Report

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