Funds advised by Apax have agreed to acquire the homeowner services group of American Water Works Company Inc. (NYSE: AWK), a publicly traded U.S. water and wastewater utility company, in a deal valued at approximately $1.275 billion.

Upon closing of the transaction, American Water will receive $480 million in cash and a $720 million secured Seller’s Note bearing a 7% annual interest rate with a five-year term. In addition, the transaction includes a delayed payment to American Water of $75 million if certain milestones are met by December 31, 2023. The structure of the transaction enables initial cash proceeds to be redeployed into the regulated water and wastewater business to fund near-term incremental capital investments, while interest on the Seller’s Note will provide a stream of earnings over the term of the note. Upon maturity, the proceeds from the repayment of the Seller’s Note are expected to be used to fund a continually growing capital investment in the regulated business. 

“American Water has successfully grown our Homeowner Services Group over the last 20 years, creating great value,” said Walter Lynch, President and CEO of American Water. “This transaction allows us to capitalize on that value creation by utilizing the proceeds to invest in our regulated businesses. As we have continuously communicated, our strategy is to operate where we can best serve customers, drive efficiencies, invest in our systems and grow our regulated water and wastewater businesses.”

The homeowner services group’s customer facing brands include American Water Resources and Pivotal Home Solutions, which provide various warranty protection programs and other home services to residential customers across the country. 

Ashish Karandikar, partner at Apax, said, “Having tracked the home warranty sector, we identified American Water Resources as a stand-out provider in the space. The Apax Funds have deep domain experience across the home services market and insurance and warranty product dynamics, with prior investments in Authority Brands, Assured Partners and Hub for example. We are excited to partner with the team at American Water Resources as we look to build on the Homeowner Services Group’s success to date, leveraging the Apax Funds’ transformational approach, hands-on operational excellence, and deep digital expertise to support the company going forward.” 

American Water was exclusively advised by BofA Securities, Schulte Roth & Zabel LLP and Shearman & Sterling LLP.