Water group up for sale

WATER company Sutton and East Surrey Water, owned by East Surrey Holdings, is expected to be put up for sale in the next few months.

East Surrey Holdings is concluding a sale to private equity group Terra Firma, but the new owner is keen to focus on its fastgrowing gas business, which supplies customers in Northern Ireland.

The water company, which supplies households and businesses in Kent, Surrey and Sussex, is worth about £140m and is likely to attract significant bidder interest.

Venture capitalist Guy Hands announced in April that he was buying East Surrey Holdings for £453m, but it was always clear that his main target was East Surrey's growing Phoenix gas supply business in Belfast. Sutton and East Surrey Water, it was indicated at the time, would come back on to the market.

Hands' £2bn Terra Firma venture fund used its Kellen Acquisitions bid vehicle to buy East Surrey. Terra Firma has spent £750m over the past two years buying waste businesses.

Phoenix has a regulated asset value of £300m and under the terms of its licence is allowed a pre-tax return of 8.5% a year until 2016. Though Sutton & East Surrey Water makes £10m a year, it is highly regulated and is obliged to invest heavily.

Last week Southern Water became the first water company to introduce a hosepipe ban for nine years following one of the driest winters on record. The use of hoses and sprinklers in private gardens and to wash the car will be banned in a large part of West Sussex as water companies struggle to meet demand. Other water companies could follow suit to conserve low water stocks.

Weather records support the need for a ban. Rainfall across the country between November and May was the fourth lowest since 1914 according to the Met Office, with suppliers fearing the prospect of a hot summer could lead to widespread shortages in densely populated areas. Sutton and East Surrey Water has already introduced restrictions on garden sprinklers and unattended hosepipe use, and other companies are also considering similar measures.