Severn Trent to buy Agrivert Holdings for £120m

Severn Trent has announced the acquisition of Agrivert Holdings, which specialises in sustainable and cost-effective food waste recycling, for £120m.

The purchase price will be paid from existing cash resources and bank facilities, including the repayment of around £60m of debt at closing.

Founded in 1994, Agrivert has five well-established food waste anaerobic digestion (AD) plants and five green and comingled waste composting sites, located to the south and west of the Severn Trent region. Its operations will be added to Severn's existing non-regulated Green Power Business and will be reported within the business services segment.

Severn said the plants will complement Green Power's two operating food waste AD plants at East Birmingham and West Birmingham and one under construction in Derby. The acquisition will add 106 GWh per annum of energy generation to the 354 GWh currently produced by Severn Trent's broader energy and renewables portfolio.

In the financial year ended 31 December 2017, Agrivert recorded revenue of £26m and earnings before interest, taxes, depreciation and amortisation of £10m.

Chief executive Liv Garfield said: "We're delighted to welcome Agrivert UK into the Severn Trent Group. Renewable energy is strategically important to Seven Trent and the UK as a whole as we work towards achieving our decarbonisation targets and delivering attractive shareholder returns.

"Agrivert UK strengthens our established presence in anaerobic digestion where we have been leaders in the water sector for many years. We have worked in partnership with Agrivert UK on a number of projects in recent years and have been hugely impressed by their engineering capability and expertise."

RBC Capital Markets said this acquisition is likely to be the final part of SVT’s plan to self-generate around 50% of its own energy needs by 2020, and it should not be a surprise to the market that SVT has continued to expand in this area.

"However, with this acquisition SVT is now above the 50% level and is signalling an intent to potentially further expand into renewable energy. This may be something we hear more about at the September 14 capital markets day. We note that the circa 12x trailing EBITDA multiple is expensive versus our current valuation of the existing SVT renewable portfolio which we value at just under £300m (circa 2% of group EV) and circa 10.2x FY19E EBITDA."

At 1125 BST, the shares were up 0.1% to 1,973p.