Following the recent collapse of its bid to buy a E1.9bn portfolio of residential properties in Cologne, Terra Firma Capital Partners has moved onto its next target.
The firm is thought to be offering around £2bn for Northumbrian Water, the UK-based utilities business owned by French water group Suez, which is selling the business to reduce its E27bn of debt.
A source close to the sale process said half a dozen firms had been short listed for the next round of bidding. Beyond Terra Firma, other parties interested in acquiring Northumbrian Water include Australia-based Macquarie Bank, which may launch a joint bid with United Utilities, as well as financial buyers Apax Partners, CVC and Candover.
Suez acquired Northumbrian Water in 1996 for £817m, subsequently merging it with other UK assets including North East Water, Essex & Suffolk Water. Northumbrian is part of ONDEO, the water division of Suez. It has four million water and sewage service customers, and reported pre-tax profits in 2001 of £92.4m on turnover of £436.1m.
Financial buyers have proved willing bidders for water utilities in the past twelve months. They are attracted by the steady cashflows generated by such businesses, as well as a relatively uncompetitive auction process. The majority of would-be trade buyers are hampered by a lack of M&A financing and the difficulty of gaining approval for transactions from the competition authorities.
Last month Anglian Water was the subject of a £900m indicative offer from WestLB’s principal finance unit.
Prior to launching Terra Firma, Guy Hands, via Nomura’s Principal Finance Unit, submitted offers for Welsh water Hyder in 2000.
Terra Firma is currently raising money for a E3bn buyout fund. A first closing at E1bn was held last year. A successful bid for the Suez assets would mark the firm’s debut investment, after spinning itself out of Normura International in 2001.