The U.S. water utility landscape 2024 was shaped by declining M&A activity, intensifying regulatory pressures, and shifting investment dynamics. As we enter 2025, utilities, investors, and public agencies must brace for continued disruption and renewed scrutiny.
M&A Activity: A Cautious Market
2024 marked the third consecutive year of decline in U.S. private water M&A activity. With just under 150,000 customer connections transferred, the market slowed to its lowest volume since 2018. This cooling is primarily attributed to high interest rates and increasingly complex regulatory hurdles.
Investor-owned utilities (IOUs) turned to small and tiny systems to avoid public and political pushback—nearly 80% of 2024 transactions involved systems serving fewer than 3,300 people. More significant transactions became riskier, with public opposition and litigation complicating approvals. For instance, high-profile resistance in Connecticut led to extended delays and negative headlines for major players.
Still, while volume dipped, strategic interest in wastewater systems remained strong. In Q4 2024, wastewater assets accounted for half of all M&A deals, an all-time high by quarterly share. This signals a growing recognition of long-term value in decentralized and aging wastewater infrastructure.
Regulatory Pressures: PFAS and Public Accountability
The regulatory climate in 2024 was dominated by the EPA’s finalization of its national drinking water standards for PFAS or “forever chemicals” linked to severe health conditions. The new rule sets legally enforceable limits on six PFAS compounds, with compliance deadlines beginning in 2027.
Water utilities, particularly smaller systems, are grappling with the financial implications. Testing, treatment installation, and long-term monitoring will require significant capital investment. Some systems may need to consolidate or seek acquisition to meet regulatory demands, presenting both a challenge and an opportunity for consolidation.
In parallel, consumer advocacy has gained ground. Public distrust fueled by ongoing lead pipe replacement issues and high-profile contamination cases has amplified calls for transparency and stricter utility oversight. Regulatory bodies respond with increased inspections, reporting mandates, and stringent enforcement.
What to Expect in 2025
Looking ahead, the water utility M&A market is expected to remain muted. Elevated interest rates and regulatory fatigue will continue suppressing the appetite for large transactions. That said, niche opportunities in underserved areas and wastewater infrastructure may still attract targeted investment.
Utilities are also bracing for the financial weight of PFAS compliance. Many will reassess their asset portfolios, operating models, and partnership strategies to stay afloat. States may step in with additional funding support, but federal dollars, mainly through the Bipartisan Infrastructure Law, will remain a critical lifeline.
From an appraisal perspective, we anticipate significant variability in utility valuations in 2025. Regulatory compliance costs, rate-setting challenges, and operational risk profiles will be key valuation drivers, particularly for systems facing PFAS-related upgrades.
The U.S. water utility sector is navigating a period of recalibration. While headwinds persist, strategic buyers and well-prepared operators will find value, especially where regulatory pressure aligns with infrastructure needs. At Appraisal Economics, our appraisal services help clients quantify risk, measure opportunity, and make sound decisions in a rapidly changing environment.