In the United States, the water utility industry differs significantly from many others. It is complicated, fragmented, heavily regulated, and replete with natural monopolies. For the most part, water utility firms are publicly owned entities. However, there are also privately owned utilities, estimated to account for approximately 10% of all operators, which are more likely to engage in merger and acquisition activity (M&A) than their public counterparts.
The coming years will pose significant challenges and opportunities for water utility companies and their owners. Water utility infrastructure experiences severe wear and tear, so companies will need to invest resources in updating their facilities. Other potential challenges range from climate change, which is expected to have multifarious effects on the industry, meeting updated codes and regulations and demographic changes.
As firms deal with these issues, M&A activity may be the best alternative. Appraisal Economics recognizes that when companies in the water utility space engage in consolidation, file their taxes, or attempt to obtain insurance, they often need appraisals, which we can provide. Please do not hesitate to contact us with questions about our services.
Approaches
Valuing water utility companies presents many challenges, but our firm uses a combination of industry-standard techniques and methodologies to ensure the process runs as smoothly as possible. Typically, we’ll employ a combination of the income, market, and cost approaches to arrive at the most accurate value.
If requested, our experts will conduct an on-site visit to the facilities in question and review important documentation, such as construction cost data, income reports, and operating expenses. If relevant, we will conduct a cost analysis to determine the cost of reproducing the facility; however, this approach is typically not as relevant for water utility firms, as existing regulations often render facility reproduction near impossible
We most often deploy the income approach for valuation purposes, which produces a pro forma cash flow statement that projects the asset’s future earnings utilizing historical financial data. Finally, when the relevant data is available, we will employ the market approach, analyzing comparable facilities’ stock prices and M&A activity to ascertain the value of the water utility. Together, these approaches will offer an accurate, balanced appraisal that can be used to formulate strategy and make key decisions.
Independent Valuation Experts
Appraisal Economics has been an industry leader for over 30 years, offering a wide range of services to clients in many industries. Our team consists of top-notch, credentialed professionals, and we utilize cutting-edge techniques, making us the best choice for water valuation and appraisal services.