Carlyle plunges into US water sector

Carlyle has bought Park Water, a California-based water utility, for an undisclosed amount. The fund marks the firm's first investment in the US water sector.

The Carlyle Group has acquired a California-based water utility, marking the fifth investment out of its $1.15 billion infrastructure fund.

The fund, Carlyle Infrastructure Partners, will acquire Park Water Company, a family-owned business that distributes water to approximately 225,000 people in California's Los Angeles County, Apple Valley and Missoula, Montana.

The transaction will mark at least the second private water utility deal agreed this year in the US by an infrastructure fund. JPMorgan Asset Management bought California-based investor-owned utility Southwest Water in a $427 million deal that closed in September.

Carlyle did not disclose the terms of its water deal.

The transaction is expected to close by July of 2011 and will leave Carlyle Infrastructure Partners more than half-way invested, said Robert Dove, the fund's co-head. But the California Public Utility Commission will first have to approve the transaction, he added.

Dove said Carlyle won't have to seek approval from a similar regulatory body in Montana because Carlyle is purchasing Park's holding company, which is based in California.

The Montana subsidiary, though smaller than its two sister California companies, still serves 50,000 people and is the largest investor-owned water utility in the state, Carlyle said in a statement.

A November filing with the California Public Utility Commission shows Park Water forecasts its 2011 water revenues to be $26.8 million and its water provision costs to be $10 million.

Park Water makes money by providing water to customers, 98 percent of whom are residential, according to the Park Water website. The average customer water bill is approximately $114 per 2-month billing period, according to the website.

The company was founded in 1937 by Henry Wheeler Sr. and has been a family owned-water utility since, making it a fairly unique business in a sector where most providers are either municipally-owned or run by  larger, corporate water providers.

A recent report by Food and Water Watch, a consumer watchdog group, said that 39 municipalities across the US considered selling their water assets in 2010. Sales have been slow to materialise, however, because water privatisation is a politically sensitive issue.

As a private family-held business, Park Water didn't face the same political obstacles to a sale. The Wheeler family sought to sell the business and developed a relationship with Carlyle, Dove said.

The family won't completely exit their involvement with Park Water. Henry Wheeler Jr., Park Water's principal owner, will remain a member of the board and serve as a consultant to the company, Dove said.

Dove said the acquisition will mark the fifth investment out of Carlyle Infrastructure Partners, which closed on $1.15 billion in November 2007. It will also be the fund's first investment in a water utility.

The fund had looked at other water utility investments but liked Park Water because of “the size of the transaction and the quality of the management team”, Dove said.

The fund's other investments include the Illinois Central School Bus company, a busing business based in Joliet, Illinois; Synagro, a Texas-based provider of sewage waste transportation; ITS Technology and Logistics, a freight container handling company based in Illinois, and Project Service, a Carlyle joint-venture that holds a 35-year concession to redevelop, operate and maintain 23 service stops in Connecticut.

As of the Connecticut deal, which closed in December 2009, Carlyle Infrastructure Partners was one-third invested and one-third through its investment period, Infrastructure Investor previously reported.

The fund is headed by Washington DC-based Dove and New York-based Barry Gold.