Duluth-based energy company Allete Inc. is investing $168 million to gain a majority interest in U.S. Water Services Inc., an integrated industrial water management company with a national footprint.

Allete said Tuesday it will acquire an 87 percent stake in St. Michael, Minn.-based U.S. Water Services, and current employees and management of U.S. Water will maintain a 13 percent ownership share. Allete will purchase the remaining 13 percent for an amount that depends on U.S. Water's future earnings.

Allete is the parent company of electric utilities Minnesota Power and Superior Water, Light and Power of Wisconsin. Allete also owns Allete Clean Energy in Duluth, and BNI Coal in Center, N.D.

U.S. Water provides integrated water management for industrial customers by providing services to reduce water and energy usage and improve efficiency. The company has 3,600 industrial customers, including several Fortune 500 companies.

According to the company, the U.S. Water acquisition fits with Allete's strategy to invest in energy infrastructure and related services to complement its regulated utilities.

"Water and energy are intricately linked, and attention to that nexus is increasing," Al Hodnik, chairman, president and CEO of Allete, said in a statement. "Just as with energy, regulation and social expectations will increasingly drive water conservation, especially as water scarcity becomes a growing challenge.

U.S. Water had about $120 million in revenue during 2014; Allete is expecting its revenue to continue growing by 10 to 15 percent annually. Management and the 385 employees of U.S. Water are expected to remain in place at their St. Michael headquarters after the acquisition closes.

Allete will use a combination of cash, equity and temporary short-term debt to pay for the deal.

Allete shares closed at $59.19, up 40 cents per share on lower than average volume.

Patrick Kennedy • 612-673-7926