AMP 8 - a silver bullet for the UK’s wastewater issues?

This is a transformative opportunity for the water and wastewater industry to address outdated infrastructure, governance issues and environmental concerns using enhanced regulatory requirements. 

Spanning from 2025 to 2030, Asset Management Period (AMP 8) is the largest investment cycle yet with £104 billion of Ofwat (the regulator for water in England & Wales) approved investment plans. This represents a 71%[1] increase from AMP 7 (2020-2025), meaning a strong opportunity for SMEs in the industry to grow, innovate and increase in value.

If you operate in the sector, we would welcome a conversation with you to understand your views on our article and how your business will capitalise on AMP 8 investment.

Why is investment increasing? 

England has a combined current sewage system (meaning wastewater and clean rainwater run through the same pipe to the sewage works) which is largely the same as when it was built in the Victorian period. Capacity is often reached after heavy rain, heightening the risk that wastewater can back up into homes, gardens and streets. Combined Sewer Overflows (CSOs) were developed to reduce this risk by releasing wastewater away from developed areas, but this is at a cost to the environment. River health is poor, as evidenced by surfers, wild swimmers and anglers, all of whom are reportedly at increased risk of illness.

A lack of governance - specifically in relation to bonuses, dividends and debt levels - has been widely cited as compromising the water companies’ ability to fund the solution. Whilst Ofwat is demanding more from water companies, including reporting on sewage spills and CSOs and issuing fines and penalties for non-compliance, AMP 8 investment will be mostly funded by the billpayer.

Water companies and their supply chains may not be able to deliver all required work within the targeted timescales, but it is accepted AMP 8 is progress and not a silver bullet. Our analysis indicates that wastewater enhancement expenditure will increase by 81% over the next 25 years from £29bn in AMP8 to £54bn by AMP 12 in 2045-50 evidencing this uptick in spending is just the start. 

Where will funding be spent? 

AMP 8 will see £44.5bn of enhancement expenditure focusing on the sustainability of our water network. Approaches to maintenance will continue to shift from being reactive to proactive through technology-led monitoring and surveying capabilities.

Over half of this spend will focus on wastewater enhancements, with £12bn to be invested on storm overflows where advanced flow monitoring and digital management systems will help to predict and reduce the frequency and volume of unconsented wastewater spillages. Spend committed to water enhancements will include £8bn in supply-demand balance and metering and £3bn in resilience and security. 

How might this impact M&A in the sector?

Whilst civil engineering and contracting capabilities are likely to be in demand, much of the solutions deployed in AMP8 are supporting regulatory-driven Testing, Inspection and Certification activities which are well sought after by investors. Businesses equipped with the technology, processes and teams which can provide such solutions at scale are expected to attract both domestic and international investors looking to capitalise on a sector with strong long-term growth fundamentals. 

Timing will be a key factor for valuation and buyers are expected to need to see increased activity within current trading, framework renewals, orders and customer schedules if AMP 8 is to enhance transaction prices. With only 11 regional water and wastewater companies in England and Wales, buyers are likely to be accepting of inherent customer concentration risks but will look out for businesses who can trade beyond these organisations and reinforce relationships by embedding their processes into customer operations.

We expect to see strong M&A activity over the next five years across water and wastewater as PE-backed platforms and overseas investors look to exploit these dynamics. Further consolidation of the supply chain is likely, as larger players expand their capabilities and absorb businesses that have adopted technology to improve their offering, but there may well be new entrants to the market, with agnostic service businesses potentially looking for exposure to new growth trends.

A brief overview of Heligan Group

Founded in 2015, Heligan is an intelligence-led investment and advisory group specialising in partnering with businesses that contribute to global safety and security. With a growing presence across multiple geographies, Heligan is recognised as a leader in its field, combining corporate finance expertise with deep sector knowledge in national security, crime prevention and public safety, infrastructure services, and healthcare. 

We bring innovation across four core pillars: Corporate Finance (CF), Investments, Wealth Management, and Strategic Insights. With offices in Birmingham and London and a team of 40+ members, the CF team advise on transactions of up to £200 million.
 

[1]https://www.ofwat.gov.uk/wp-content/uploads/2024/12/PR24-final-determinations-Expenditure-allowances-V2.pdf