(Bloomberg) -- Xylem Inc. agreed to acquire Evoqua Water Technologies Corp. in a $7.5 billion all-stock deal, extending its lead as the largest pure-play water company at a time when governments and businesses are ramping up spending on clean water.

For each Evoqua share, investors will receive 0.48 of Xylem shares, according to a statement Monday. That represents a value of $52.89 per share for the acquisition target, or a 29% premium based on Jan. 20 closing prices. Evoqua shareholders will own 25% of the combined company. 

The two companies have been in merger talks for several years, Patrick Decker, Xylem’s chief executive officer, said on a conference call with analysts to discuss the transaction. He sees few antitrust hurdles to closing the deal, saying that there’s very little overlap in the businesses.

Xylem makes pumps, valves and meters while Evoqua provides water services to municipalities and industries, including chemicals, energy and food. Xylem is a key holding in a BlackRock Inc. exchange-traded fund focused on water.

Read more: BlackRock Fund Puts Rich-World Water Crisis on Investing Agenda

“The global awareness of water as a systemic risk has never been more prominent,” Decker said in the call. “It’s water scarcity, the resiliency of water systems to climate change and how these challenges are addressed affordably.”

The market need for clean water is massive, with $750 billion required just to maintain current service levels in drinking water and wastewater in the US alone, the companies said. Under the Infrastructure Investment and Jobs Act, the US is spending an additional $55 billion to upgrade water systems. 

The tie-up will create a water-technology company with more than $7 billion in revenue. Pittsburgh-based Evoqua has grown sales by 7% annually over the last four years to reach $1.7 billion, and counts on more than 38,000 customers and 200,000 installations worldwide. 

The combination is set to reach cost synergies of $140 million within three years, mainly on procurement, back-office operations and optimizing field offices, the companies said. 

Xylem’s larger international presence will give Evoqua a “beachhead” for growth abroad, said Evoqua CEO Ron Keating on the call. “This is an ideal partnership and alignment for us to be able to do that,” he said. 

Decker will continue to lead the combined company after the close, which is expected by midyear. Two current Evoqua directors will join Xylem’s board. Lazard and Guggenheim Securities advised Xylem, while Goldman Sachs and BofA Securities were financial advisers for Evoqua.

Xylem shares fell 8.8% at 12:27 p.m. in New York, while Evoqua gained 14%.

©2023 Bloomberg L.P.