Pentair: A Water Play with a Premium Valuation

Pentair is a water solutions provider with a sustainable business model and a dividend aristocrat. Despite its encouraging positioning, the company's performance was considered underwhelming. However, recent improvements in its story suggest that Pentair may be worth considering for investors looking for a stable and sustainable investment opportunity.

Pentair plc (PNR), a leading provider of sustainable water solutions, has announced a definitive agreement to acquire Hydra-Stop LLC, a specialty valve solutions provider, for approximately $290 million in cash. This strategic acquisition aims to enhance Pentair's offerings to support the growing water needs of cities worldwide [1].

Hydra-Stop, founded in 1981, is a leading manufacturer of insertion valves and line stop fittings, serving water utility service providers and municipalities across the United States. The acquisition is expected to generate approximately $50 million in revenue by 2025, with an anticipated Return on Sales of approximately 30% [1]. Upon completion, Hydra-Stop will operate within Pentair's Commercial and Infrastructure business unit.

The acquisition aligns with Pentair's mission to help the world sustainably move, improve, and enjoy water. De’Mon Wiggins, Executive Vice President and President of Pentair Flow, stated that the acquisition will support municipalities and their service providers in addressing critical water issues. Pentair believes the Hydra-Stop culture and priorities are highly aligned with its efforts to sustainably move water [1].

Pentair has a robust track record of margin gains and strategic acquisitions, including the acquisition of G&F Manufacturing in 2024. These acquisitions have contributed to the company's steady growth, despite a modest increase in sales. Pentair's strong financial position, with net debt of approximately $1.4 billion and EBITDA around $1 billion, allows it to pursue strategic acquisitions like the one with Hydra-Stop [2].

Despite recent underwhelming performance, Pentair's long-term prospects appear promising. The company's focus on sustainable water solutions, dividend aristocrat status, and strategic acquisitions position it as a stable and sustainable investment opportunity for investors [2].

The acquisition of Hydra-Stop is expected to close by the end of 2025, subject to customary closing conditions, including necessary regulatory approvals [1]. Pentair's ability to integrate the acquisition successfully and achieve the expected financial benefits will be crucial for its continued growth.

References:

[1] https://seekingalpha.com/pr/20203314-pentair-announces-definitive-agreement-to-acquire-hydra-stop

[2] https://seekingalpha.com/article/4814741-pentair-an-improved-story