What Private Equity Buyers Look For In A Water Company

Many owners of a water business have taken a call from a private equity firm. The pipeline rehab contractor, the regional O&M operator, the pump distributor, the lab, the chemical treatment service company with four hundred cooling-tower accounts, the software company with thirty utility customers. All of them are on somebody’s target list, and the owner usually hears the PE pitch without knowing what the buyer is actually screening for.

I’ve been on that other side. I sold a water company to a publicly traded strategic buyer, spent years inside a large industrial’s water division evaluating acquisitions and early-stage investments, and these days I spend part of my time looking at water services and technology businesses on behalf of investors. What buyers are looking for is more consistent than owners expect, and most of what moves the price is fixable a year or two before a sale.

This post covers why private equity likes water, how a buyer underwrites a services business differently from a technology business, what the diligence looks like, and what to fix before you take the call. If you’re raising venture capital for an early-stage company, my article on what water technology investors want to see in a pitch covers that side; this one is about a buyer taking a controlling stake in an established business.

Why private equity is buying water companies

Bluefield Research counted 435 private equity deals in water since 2015, with active holdings above 327 companies, more than double the 2019 count. Sixty percent of those holdings are less than three years old, which means a wave of them will come back to market between now and 2029. The first half of 2026 was the strongest deal pace since 2021.

The thesis is the same in nearly every deal announcement. One investor in the Sterling Group’s purchase of Scruggs, a Texas municipal water contractor, put it plainly: municipal water spending doesn’t correlate with GDP growth. A city has to treat its water and move its sewage whether or not the economy is good, and the EPA’s own survey puts the drinking water need alone at $625 billion over twenty years. Demand is non-discretionary, regulation keeps adding to it (PFAS limits, lead service line replacement, cybersecurity rules, and the next thing after those), and the customers rarely go out of business.

The second half of the thesis is fragmentation. There are roughly 49,500 community water systems in the United States and 81% of them are small, served by thousands of local contractors, operators, distributors, and engineers who are, in many cases, owned by a founder approaching retirement. A buyer who assembles twenty of those into one platform has built something a larger fund or a strategic buyer will pay a premium for. New Mountain Capital’s Azuria made about twenty acquisitions in sewer and pipeline rehab before combining with Inframark into a business with more than $2.5 billion in revenue. Sylmar Group has bought five industrial water treatment service companies since mid-2025 and raised $130 million in debt to keep going.

It’s happening more frequently than ever, which leaves business owners in this industry with a question - if I consider selling, how do I maximize the value of my business?

First, let’s look at how services firms and technology firms are evaluated.

Services and technology are underwritten differently

A buyer’s first question is which kind of business you are; the diligence that follows is different for each.

	Water services business	Water technology business
Examples	O&M contractors, pipeline inspection and rehab, meter installers, labs, chemical treatment services, distributors, engineering firms	Monitoring hardware and software, treatment equipment with a service tail, utility software
What the buyer values	Contract length, backlog, technician bench, geographic density, bonding and prequalification	Installed base, recurring software or parts revenue, gross margin, churn at the utility
Typical path	Add-on to a platform, or a platform if you have scale and a management team	Growth investment, or sale to a strategic (Badger, Xylem, Veolia, Grundfos)
Where the price is set	Multiple of EBITDA, adjusted for how much revenue is recurring	Multiple of EBITDA or revenue, depending on growth rate and margin

A services business is bought for its cash flow and its position. The buyer wants to know how much of next year’s revenue is already under contract, how hard it would be for a competitor to take those contracts, and whether the business runs without the owner. Alvarez & Marsal’s write-up on the sector lists the barriers that make a municipal contractor defensible: prequalification, reference projects, certified teams, and bonding capacity. Those are the moats and they’re built over decades.

A technology business is bought for growth and for what the installed base will keep paying. Badger Meter paid $185 million for SmartCover, a sewer monitoring company with roughly $35 million in revenue, and the CEO’s explanation was the recurring software and support model. A hardware company that sells a box once is valued very differently from one whose boxes come with a subscription or a service contract. If you can’t tell a buyer what percentage of revenue repeats without a new sale, work that out before anything else.

What the buyer screens for

The diligence list spans hundreds of items; I’ve tried to distill it down to the ones that set the price.

Recurring revenue, and the real definition of it. A buyer will reclassify your revenue whether you do it or not. A five-year O&M contract is recurring. A pipeline rehab job you win on bid every year from the same city is repeat business, which is good, but it’s a bid you can lose. A one-off plant upgrade is project revenue. Owners tend to count the second category as the first, and the buyer’s quality-of-earnings work will sort it out in the first two weeks, so it’s better to arrive with it sorted.

Customer concentration. One municipal contract above 20 to 25% of revenue is a conversation; above 40% it’s a price cut or a structure that holds back part of your proceeds until the contract renews. The specific number varies by buyer, but every buyer models what happens when your biggest account goes out to bid and a national competitor shows up.

Contract term and rebid exposure. For every meaningful contract, the buyer builds a table of term, renewal date, termination-for-convenience language, and the last three bid outcomes. A portfolio with renewals spread across years is worth more than one where half the revenue rebids in the same twelve months. If you’ve read about how utilities make buying decisions you know the renewal is often decided a year before the date on the contract; the buyer wants to see that you’re managing that, with named relationships and a record of extensions.

Backlog and pipeline. Signed backlog is counted; weighted pipeline is discounted heavily, and a pipeline spreadsheet nobody has updated since the last board meeting (or since last year!) is discounted to zero. The buyer will call a sample of the customers in it.

The technician and operator bench. The water sector has a workforce problem and the buyer knows it. A business with twelve licensed operators, documented training, a wage structure that keeps them around, and a talent bench that can cover a retirement is worth more than most of the competition. Buyers ask for a tenure list, licensing by person, and turnover for the last three years, and they compare your wages to the local utility’s or relevant competitors.

Owner dependency. If the largest customer relationships and the bid pricing live in your head, the buyer is buying a job, and they price it that way: a lower multiple, more of the proceeds held in an earnout, and a transition agreement that keeps you working for two or three years. A second layer of management that can run the company without you is the single most valuable thing an owner can build before a sale.

Clean financials. Reviewed or audited statements, revenue recognized on a defensible basis, owner expenses separated, and a fixed-asset register that matches the fleet in the yard. Deferred fleet or equipment capex gets found and deducted. A buyer who finds one surprise in the numbers assumes there are more and prices accordingly.

Regulatory exposure. For a lab, a chemical business, or a hauler, the buyer will look at permits, environmental liabilities, and any pending enforcement. For a technology company, the question trends the other way: which regulation is driving your demand, and what happens to the business if the deadline moves? The PFAS compliance extension is a live example; companies that built a plan on the original dates had a harder conversation with their investors in 2026.

What the multiples look like

Owners ask about multiples first, so a few benchmarks, with the caveat that the published numbers skew toward large deals. Roland Berger’s 2026 water M&A study puts the average disclosed transaction multiple in 2025 at about 10.8 times EBITDA, with a scarcity premium for quality assets. McLean Group’s 2025 review has publicly traded water utilities at a median of 14.6 times and notes that private businesses take size and liquidity discounts from there.

A founder-owned services company with a few million dollars of EBITDA and project-heavy revenue should expect a single-digit multiple, and the number moves up as the share of contracted recurring revenue rises and the bench deepens. A technology business with high gross margins and a subscription base can trade on revenue rather than EBITDA, as SmartCover did at roughly five times sales. Treat any specific number a broker quotes you as a starting point for a conversation; the buyer’s quality-of-earnings report is what sets the real one.

How to prepare, twelve to twenty-four months out

Sort the revenue yourself. Build the contracted, repeat, and project categories and track them quarterly. Move revenue into the contracted column where you can: offer a three-year service agreement to the accounts you’ve served annually for a decade, and convert maintenance you’ve been doing on a handshake into a signed scope.

Fix the concentration you can. Win two or three mid-sized accounts in the year before a sale and the top-customer percentage drops without losing anyone.

Hire or promote the second layer. An operations lead who owns scheduling and a sales lead who owns the renewal calendar. Put them in front of customers now so the buyer sees the relationship surviving you.

Get the books reviewed. Have a CPA firm do a review, and if you’re above $10 million in revenue, think about a sell-side quality-of-earnings before you go to market. Finding your own problems first keeps them from becoming price reductions later.

Document the moat. Prequalification status with every agency you serve, licenses by employee, bonding capacity, safety record, reference projects by type and size. The buyer will ask for all of it and a business that hands it over in week one reads as well run.

Know which buyer you are talking to. A platform looking for add-ons pays for geography and bench. A fund looking for a platform pays for a management team and a plan. A strategic pays for the installed base and the product. The same business gets three different offers depending on who’s across the table, and the owner who understands the difference runs a better process.

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Adam Tank has sold a water company to a strategic buyer, evaluated water acquisitions and early-stage investments inside a large industrial’s water division, and advises owners and investors on water services and technology transactions. Get in touch if you’re thinking about selling, taking on a growth investor, or buying in the sector.