Xylem Announces $7.5 Billion Acquisition of Evoqua

We expect to lower our $100 fair value estimate for narrow moat-rated Xylem by a mid-single-digit percentage after the water technology firm announced its intention to acquire Evoqua in an all-stock transaction valued at roughly $7.5 billion. While we believe the deal is strategically sound, given the complementary fit of the two firms' portfolios, our fair value reduction reflects the hefty price tag. Xylem's stock closed down nearly 8% following the announcement, which we think reflects investors' concerns about the purchase price, which implies a multiple of around 23 times forward EBITDA.