Thames Water’s Toxic Swamp Didn't Suit KKR

A new world is approaching for the toxic swamp of Britain’s water industry — and there’s no place in it for private equity. KKR & Co.’s withdrawal as the preferred bidder for a £4 billion ($5.4 billion) equity investment in Thames Water leaves the utility at heightened risk of financial collapse and enforced government supervision. It’s the clearest signal yet that the sector is heading for seismic change.

The precise trigger for KKR’s exit, disclosed by Thames Water on Tuesday, isn’t clear. The politicization of the industry was a major disincentive for the US investment firm to pursue a deal, the BBC reported, citing sources close to the situation. Maybe. But KKR always knew what it was getting into: Thames Water is a pariah and a punchbag for politicians because of its serial pollution and poor customer-service record, as well as the legacy of a previous private-equity owner, Australia’s Macquarie Group, which loaded the company up with debt and extracted billions in dividends. The ride was never going to be easy. There are broader forces at work here.