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The consolidation train rolls on
FEATURE
The consolidation train rolls on Steve Maxwell
S
tarting with the much-discussed “foreign invasion” of the US water industry in the 1990s – by the British, French and German utility companies – the consolidation and ownership rearrangement of key water companies continues full speed ahead. Although most of the earlier utility acquirers have since backed out, they have been replaced by a new class of both industrial and financial buyers – and the water industry merger and acquisition craze shows no signs of slowing down. Diversified international industrial firms such as Siemens, General Electric, Danaher, ITT, Pentair and 3M are emerging as the new consolidators in the industry, while at the same time private equity players are becoming a much bigger force in the business. Among the largest transactions during 2006 was the acquisition of low-pressure membrane leader Zenon by General Electric. Zenon was one of the major remaining independent membrane manufacturers, and a clear leader in the rapidly growing hollow-fiber membrane bioreactor field. More surprising than the deal itself was the steep price which GE (once again) paid to get the asset that it coveted – US$650 million for a US$200 million revenue company that had never really generated significant or sustainable earnings. Valuations aside, however, GE has now built one of the largest water treatment and desalination companies in the world, and is generally a force to be reckoned with in most large international projects. Another closely watched deal was the sale of the much smaller residential treatment system manufacturer Kinetico. After a lengthy sale process, the company was ultimately acquired by the US arm of Axel Johnson – one of the largest privately owned companies in Sweden. Axel Johnson was already a rather silent participant in the US water business – owning the Florida-based treatment equipment company Parkson Inc. Interestingly, just prior to the Kinetico purchase, Axel Johnson had sold its wastewater services firm, ADS Environmental. “Block-buster” deals have been fewer in number this year – in part because there simply are fewer large pure-play water companies left. However, smaller deals have continued apace. Pentair made several small acquisitions, including Krystal Klear, a maker of filter housings, and more recently it acquired a larger water treatment services firm – Porous Media Inc. Siemens also acquired several smaller water companies, continuing its strategy of adding niche companies to fill out and complete its already broadly diversified equipment and service offerings. One new buyer during this past year was Ashland – the oil refining company – which acquired some Chinese industrial water businesses as well as the US$250 million water
September 2007
treatment chemicals business of German industrial giant Degussa AG. The new parent company of ADS Environmental, the equity capital-backed Nova Analytics, was also an active acquirer during the year, picking up a number of water/wastewater and instrumentation related businesses, including the pipeline division of Severn Trent Services. Cantel Medical, already the owner of several water process businesses, picked up the dialysis water business of General Electric just a few months ago. The Quebec company GL&V continued its purchasing spree – having now conducted nine acquisitions over the past year and a half – most recently buying Enviroquip and process equipment manufacturer Krebs International. In April of this year, GL&V announced its further intent to spin off its water businesses into a new publicly traded company. Danaher also put its toe back into the broader water industry again – this time buying ChemTreat, reportedly the third largest water treatment chemicals business in the United States for a value of slightly over two times revenue. Broadening its strategic direction from its earlier focus on water instrumentation businesses, Danaher has now signaled its intent to become a broader-based water player with this deal and with its previous Trojan Technologies ultraviolet radiation treatment business acquisition. Consolidation activity is also quite intense outside of the US as well. Several firms made significant acquisitions to try to further their strategic footprint in the expanding international water markets. By far the largest was the Australian Macquarie Bank’s well-chronicled acquisition of Thames Water. The UK’s Kelda sold its Connecticut-based Aquarion business, also to Macquairie – who is clearly the emerging dominant player in terms of infrastructure-oriented funds. Numerous infrastructure players in the UK and western Europe have bought and sold significant assets during the past twelve months.
A somewhat newer trend in the industry has been the recent surge of private equity players in the water business. This is perhaps not surprising, given the private equity firms raised US$400 billion of new capital in 2006 – and conducted deals worth over US$570 billion in just the first three quarters of the year. This represented some 25% of all merger and acquisition transactions around the world – and one recent review pointed out that one out of every five employees in the UK now works for a company owned by private equity. Just a few of the more well-known companies which have been acquired by private equity groups in the last couple of years include Culligan, Water Pik and Nalco – already spun back to public shareholders. Most recently, the British firm Doughty Hanson acquired Norit – a well-known Dutch-based company active in activated carbon treatment and membrane businesses. The deal reportedly went for a hefty price, and this was the third time the company has changed hands over just the past few years. With so many major industry assets changing hands so quickly – some multiple times – the competitive situation in the water treatment equipment industry might be said to be quite “fluid.” The long-term picture will gradually become clearer, but there are several key questions at the moment – which of these companies will ultimately be the major players in the next generation of this industry? How can companies, like RWE, that were such committed buyers a few short years ago, turn so quickly into eager sellers? What was wrong with their strategies? Will the new owners of these assets have sounder strategies? What will be the ultimate impact of this large-scale ownership rearrangement on employees, shareholders, and – most importantly – customers?
About the author Steve Maxwell is managing director of TechKNOWLEDGEy Strategic Group, a Boulder, Colorado, USA-based management consultancy specializing in merger and acquisition advisory services, and strategic planning for the water and broader environmental industries. Maxwell is also the editor and founder of The Environmental Benchmarker and Strategist. He can be reached in Boulder by telephone on +1 303 442 4800 or via e-mail at [email protected].
Filtration Industry Analyst
11
The consolidation train rolls on Steve Maxwell
S
tarting with the much-discussed “foreign invasion” of the US water industry in the 1990s – by the British, French and German utility companies – the consolidation and ownership rearrangement of key water companies continues full speed ahead. Although most of the earlier utility acquirers have since backed out, they have been replaced by a new class of both industrial and financial buyers – and the water industry merger and acquisition craze shows no signs of slowing down. Diversified international industrial firms such as Siemens, General Electric, Danaher, ITT, Pentair and 3M are emerging as the new consolidators in the industry, while at the same time private equity players are becoming a much bigger force in the business. Among the largest transactions during 2006 was the acquisition of low-pressure membrane leader Zenon by General Electric. Zenon was one of the major remaining independent membrane manufacturers, and a clear leader in the rapidly growing hollow-fiber membrane bioreactor field. More surprising than the deal itself was the steep price which GE (once again) paid to get the asset that it coveted – US$650 million for a US$200 million revenue company that had never really generated significant or sustainable earnings. Valuations aside, however, GE has now built one of the largest water treatment and desalination companies in the world, and is generally a force to be reckoned with in most large international projects. Another closely watched deal was the sale of the much smaller residential treatment system manufacturer Kinetico. After a lengthy sale process, the company was ultimately acquired by the US arm of Axel Johnson – one of the largest privately owned companies in Sweden. Axel Johnson was already a rather silent participant in the US water business – owning the Florida-based treatment equipment company Parkson Inc. Interestingly, just prior to the Kinetico purchase, Axel Johnson had sold its wastewater services firm, ADS Environmental. “Block-buster” deals have been fewer in number this year – in part because there simply are fewer large pure-play water companies left. However, smaller deals have continued apace. Pentair made several small acquisitions, including Krystal Klear, a maker of filter housings, and more recently it acquired a larger water treatment services firm – Porous Media Inc. Siemens also acquired several smaller water companies, continuing its strategy of adding niche companies to fill out and complete its already broadly diversified equipment and service offerings. One new buyer during this past year was Ashland – the oil refining company – which acquired some Chinese industrial water businesses as well as the US$250 million water
September 2007
treatment chemicals business of German industrial giant Degussa AG. The new parent company of ADS Environmental, the equity capital-backed Nova Analytics, was also an active acquirer during the year, picking up a number of water/wastewater and instrumentation related businesses, including the pipeline division of Severn Trent Services. Cantel Medical, already the owner of several water process businesses, picked up the dialysis water business of General Electric just a few months ago. The Quebec company GL&V continued its purchasing spree – having now conducted nine acquisitions over the past year and a half – most recently buying Enviroquip and process equipment manufacturer Krebs International. In April of this year, GL&V announced its further intent to spin off its water businesses into a new publicly traded company. Danaher also put its toe back into the broader water industry again – this time buying ChemTreat, reportedly the third largest water treatment chemicals business in the United States for a value of slightly over two times revenue. Broadening its strategic direction from its earlier focus on water instrumentation businesses, Danaher has now signaled its intent to become a broader-based water player with this deal and with its previous Trojan Technologies ultraviolet radiation treatment business acquisition. Consolidation activity is also quite intense outside of the US as well. Several firms made significant acquisitions to try to further their strategic footprint in the expanding international water markets. By far the largest was the Australian Macquarie Bank’s well-chronicled acquisition of Thames Water. The UK’s Kelda sold its Connecticut-based Aquarion business, also to Macquairie – who is clearly the emerging dominant player in terms of infrastructure-oriented funds. Numerous infrastructure players in the UK and western Europe have bought and sold significant assets during the past twelve months.
A somewhat newer trend in the industry has been the recent surge of private equity players in the water business. This is perhaps not surprising, given the private equity firms raised US$400 billion of new capital in 2006 – and conducted deals worth over US$570 billion in just the first three quarters of the year. This represented some 25% of all merger and acquisition transactions around the world – and one recent review pointed out that one out of every five employees in the UK now works for a company owned by private equity. Just a few of the more well-known companies which have been acquired by private equity groups in the last couple of years include Culligan, Water Pik and Nalco – already spun back to public shareholders. Most recently, the British firm Doughty Hanson acquired Norit – a well-known Dutch-based company active in activated carbon treatment and membrane businesses. The deal reportedly went for a hefty price, and this was the third time the company has changed hands over just the past few years. With so many major industry assets changing hands so quickly – some multiple times – the competitive situation in the water treatment equipment industry might be said to be quite “fluid.” The long-term picture will gradually become clearer, but there are several key questions at the moment – which of these companies will ultimately be the major players in the next generation of this industry? How can companies, like RWE, that were such committed buyers a few short years ago, turn so quickly into eager sellers? What was wrong with their strategies? Will the new owners of these assets have sounder strategies? What will be the ultimate impact of this large-scale ownership rearrangement on employees, shareholders, and – most importantly – customers?
About the author Steve Maxwell is managing director of TechKNOWLEDGEy Strategic Group, a Boulder, Colorado, USA-based management consultancy specializing in merger and acquisition advisory services, and strategic planning for the water and broader environmental industries. Maxwell is also the editor and founder of The Environmental Benchmarker and Strategist. He can be reached in Boulder by telephone on +1 303 442 4800 or via e-mail at [email protected].
Filtration Industry Analyst
11