American Water to Acquire Essential Utilities in $12.3B Deal
The all-stock transaction will create a dominant force in the U.S. water utility sector, serving nearly five million customers across 17 states.
American Water Works agreed on Monday to acquire Essential Utilities in a $12.3 billion all-stock deal, a move that will create a coast-to-coast behemoth in the U.S. water and wastewater industry and signals a major new phase of consolidation.
The transaction, announced in a joint statement, will combine two of the sector's largest players. Shareholders of Essential Utilities (WTRG) will receive 0.305 shares of American Water (AWK) for each share they own. This represents a value of approximately $43.20 per share based on American Water's recent trading, a premium of about 10% to Essential's 60-day volume-weighted average price.
Shares of Essential Utilities rose sharply on the news, trading up more than 4% to $42.95 in morning activity. Conversely, shares of American Water dipped 1.5% to $139.45, a typical reaction for an acquirer in a large, stock-based transaction that creates share dilution.
Strategic Scale and Market Reach
The merger will create a utility giant with a pro-forma enterprise value of $63 billion, serving approximately 4.7 million water and wastewater customers across 17 states. The combined entity will have a significantly larger rate base—the value of infrastructure on which utilities are permitted to earn a return—of about $29.3 billion, enhancing its ability to fund critical infrastructure upgrades.
"This merger is a strategic move to enhance our capacity for infrastructure investment and operational excellence," said M. Susan Hardwick, President and CEO of American Water, in the announcement. The companies anticipate the combination will be accretive to American Water's earnings per share within the first full year after closing and will support its long-term EPS and dividend growth targets of 7-9%.
A Contrarian Move in a Fragmented Market
The blockbuster deal arrives amid a slowdown in large-scale M&A within the U.S. water utility space. Over the past two years, rising interest rates and complex regulatory environments have led many investor-owned utilities to focus on smaller, bolt-on acquisitions of municipal systems. A Q1 2025 report on the sector noted that M&A activity had reached its lowest volume since 2018, with most deals involving systems serving fewer than 3,300 people.
This transaction bucks that trend, suggesting that the strategic benefits of scale—including operating efficiencies and a stronger position for capital-intensive projects—are compelling enough to overcome broader market headwinds. The U.S. water system remains highly fragmented, with tens of thousands of small, local providers, many of whom lack the resources to meet increasingly stringent environmental standards, such as those recently implemented by the EPA.
Analysts see the deal as a logical step to address the nation's aging water infrastructure. "Combining these two well-run operators creates a company with the financial strength and geographic diversity to tackle the significant investment required in the water sector over the coming decades," noted analysts at Morningstar.
Financial and Regulatory Outlook
The combined company will operate under the American Water name and brand, with its headquarters remaining in Camden, New Jersey. The board will be expanded to include three directors from Essential Utilities.
The transaction is structured as a tax-free reorganization for Essential Utilities shareholders. Prior to the deal, American Water held a market capitalization of roughly $27.6 billion, while Essential Utilities was valued at approximately $11.5 billion.
Completion of the merger is contingent upon customary closing conditions, including the approval of shareholders from both companies and clearance from state utility commissions in Pennsylvania, Ohio, and Illinois, where the companies have significant overlapping or adjacent operations. The companies expect the regulatory review process to take 12 to 18 months, with an anticipated closing in the first half of 2027.
This extended timeline reflects the potential for significant regulatory scrutiny, as state commissions will need to be convinced that the consolidation will benefit customers through stable rates and improved service quality, rather than simply creating a less competitive market.