Scottish Water secures major English deal
Firm acquires customers from rival supplier in preparation for sector change
SCOTTISH Water’s business supply arm has made a grab for a big slice of the English market by agreeing to acquire the non-domestic customers of Southern Water.
The deal will allow Business Stream to double its customer base by taking on 105,000 organisations that are supplied by Southern Water from April, when the non-domestic market in England is opened fully to competition.
The price of the deal was not disclosed but it looks likely to have been in the millions.
Southern Water’s business represents about 10 per cent of the market in England in terms of customer numbers.
The deal will make Business Stream the third-biggest nondomestic supplier in the UK behind Thames Water and the Water Plus venture, formed by United Utilities and Severn Trent Water.
Business Stream has made clear its ambitions to build a big business south of the border. The company believes the experience it has gained since the market in Scotland was opened to competition in 2008 will give it an edge over rivals.
Chief executive Johanna Dow said: “The acquisition of Southern Water’s customer base provides us with a springboard for growth ahead of the English market opening next year.
“The new market will create huge opportunities for Business Stream. We are ideally placed to secure market share by leveraging our knowledge, capability and experience.”
Ms Dow noted that the deal would give Business Stream immediate scale in the English market. It will bring a big customer-base spread across southern England in an area where Business Stream could hope to win business from rivals such as Thames Water.
She said expansion in England, where the company already supplies some big businesses such as House of Fraser, will also create benefits for the organisation and its customers in Scotland.
The acquisition will allow Business Stream to spread the fixed costs associated with things like property across a bigger number of customers. Ms Dow said this could pave the way to price cuts, without giving an indication of their likely scale.
Business Stream would also be able to invest more in Scotland. It expects to create up to 40 new jobs at its Edinburgh headquarters to support the expanded operation.
Business Stream has seen its share of the non-domestic market in Scotland shrink hugely after it lost a £350 million public sector contract to Anglian Water in October.
The company would be interested in making further expansion moves in England, through acquisitions, partnerships or by forming joint ventures.
Southern Water chief executive Matthew Wright said the company had decided to sell its non-domestic business to a specialist after careful consideration. Ms Dow said the firms were in talks for 12 months.
Southern Water has a big domestic business, which supplies more than two million customers.
The company’s latest accounts show it made £204m in pre-tax profit on sales of £829m in the year to March 2015.
The accounts of the holding company state about 80 per cent of the business’s water and waste-water services revenue comes from household customers. This suggests about 20 per cent comes from non-domestic customers.
In Southern Water’s accounts, the company says the liberalisation of the non-domestic market will require it to make significant structural changes to be able to continue to comply with regulatory requirements and to anticipate the shift in the customer base.
The deal will result in a chunk of the English water industry returning to public ownership.
Southern Water was one of 10 regional authorities privatised by the Thatcher government in 1989.
It was acquired by Scottish Power for about £1.7 billion in 1996 under the energy firm’s ultimately unsuccessful diversification drive. Scottish Power sold the business to a group of investors, which included Sir Tom Hunter’s West Coast Capital, in 2002, for £2.05bn.
A consortium that includes Australian and Canadian pension funds and infrastructure investors bought the business in 2007, from Royal Bank of Scotland, for £4.2bn.
The consortium noted Southern Water generated strong cash flow in a regulated sector and had good growth opportunities.
Roseanna Cunningham, cabinet secretary for environment, climate change and land reform, welcomed the Southern Water deal but said the Government wants to keep Business Stream in public ownership.
‘‘ We are ideally placed to secure market share by leveraging our knowledge, capability and experience