Macquarie Asset Management has reached an agreement to acquire a majority stake in UK utility Southern Water Services Limited. Southern Water supplies 2.6 million water customers and 4.7 million wastewater customers across the south of England.

Under the agreement, Macquarie Asset Management will invest, on behalf of long-term investors including pension funds and insurance companies, over one billion pounds in new equity to recapitalize the business, and implement a more sustainable financing strategy.

The capital injection will enable Southern Water to invest significantly to upgrade its network, with 2 billion pounds to be invested over the next four years of the current regulatory period ending in 2025 to fix the pipes, pumping stations, and sewers which are underperforming and causing harm to the local environment.

According to Macquarie, the investment programme will allow Southern Water to access the resources it needs to improve its operational and financial performance, financial resilience, and relationship with its customers. Macquarie has consulted extensively with Ofwat, the regulator of water and wastewater services in England and Wales.

As part of its commitments under the deal, Macquarie Asset Management says it will seek to improve Southern Water's environmental track record, which Macquarie recognizes is one of the worst performing in the UK water sector. The company is implementing plans to reduce pollution incidents by more than 50% (compared with 2019) over the next four years, and to reduce the number of water leaks.

“Southern Water needs significant investment to improve its operational and environmental performance, and financial health,“ says Leigh Harrison, head of Macquarie Infrastructure and Real Assets. “This major GBP1 billion equity investment by one of our long-term infrastructure funds will help put Southern Water back on a stable footing, and enable an ambitious multi-year transformation plan to make essential water and wastewater services in the southeast of England more sustainable and resilient.“

“While we expect Southern Water will have made substantial progress in addressing its issues by the end of 2025, we acknowledge the business’ transformation will take time and that is why we intend to own our stake in Southern Water over multiple regulatory periods,“ Harrison adds.