I recently read an article by Chris Gasson of Global Water Intelligence which was thought-provoking and insightful. The article addressed a number of issues surrounding water technology company acquisitions and raised a question regarding what problems companies are looking to solve through these acquisitions.
In my experience advising large water companies’ strategic acquisitions activity, I have identified three key reasons why they seek to acquire water technologies companies:
1. To future-proof their technology portfolios
Companies always want to ensure they have tomorrow’s solution in their portfolio, especially if there is reason to believe that tomorrow’s solution will not look like today’s product. Two of the major trends in the water industry that will lead to growth and which may require new solutions are water re-use and energy and resource recovery from wastewater. Wastewater currently consumes energy and does not recover resources. Therefore, if the market is to move towards energy neutral, with a focus on resource recovery, this will require new solutions.
Because innovation within large corporations can be challenging, one way to future-proof the portfolio is through acquisitions. The 2013 BlueTech Forum in Amsterdam on May 14th addresses this exact issue in the “Intrapreneurship and In-House Innovation” panel and the BlueTech Showcase will feature the kinds of companies with highly disruptive technologies (i.e., UV LED companies Aquionics and Crystal IS) that large corporations seek to acquire.
2. To access new market opportunities and drive growth
All companies are looking for growth. Three key areas where growth opportunities exist are:
- Where an infrastructure gap exists (e.g., in the developing world economies)
- Where a new market is opening that did not previously exist (e.g., shale gas-produced water management, Oil Sands Alberta)
- Where the existing market is changing (e.g., the move within wastewater treatment towards water re-use and energy and resource recovery).
One way to access these new market opportunities is through acquisition. In the emerging economies, this can be through local acquisitions of EPC contractors and private operators. In new market areas, such as shale gas, this can be through acquisition of service providers and of solutions specifically suited to these applications. For changes in an existing market, an acquisition can future-proof the technology portfolio (e.g., adding in advanced oxidation or nanofiltration membranes to capitalize on the trend towards water re-use market).
This year at the BlueTech Forum, we are featuring a number technologies aimed at the oil & gas industry and water re-use, and food & beverage (e.g, MIOX, which produces on-site disinfectants and mixed oxidants for municipal and industrial applications and Magpie Polymers, which recovers and enables recycling of rare and precious metals, and reduces metal content in industrial waste-water).
3. To enable new entrants to enter the water technology market
Many new entrants are entering the water market, including companies like LG Electronics, Bilfinger, BASF, Mann + Hummel, Mahle, Clariant, Fuji, Novozymes, PWN Technologies and Outotec. At BlueTech Forum, we will explore this very topic in our “New Entrants to the Water Game” panel and will hear from these companies on what is driving their move into the sector and their strategy for growth.
When executives decide to create a new water business unit within a company, management is typically tasked to achieve certain growth targets in a short span of time, as opposed to decades. In general, it is faster, less expensive, and poses a lower risk for a large corporation to enter the water technology market through acquisition than through internal growth. To start from zero and build a water technology section within a company takes decades, while acquisition would immediately add significant revenue and a footprint in a new market area.
Many previous major acquisition strategies employed the ‘general store’ approach and created what appeared as a ‘water business,’ but was more like a Frankenstein of various assorted bits and pieces that did not constitute a cohesive, functional entity. We are now seeing a more focused and targeted acquisition strategy, where companies first establish their ‘right to play’ in the water sector, recognize their core strengths and adjacencies in the market, and then acquire companies and technologies in market areas of interest. They acquire entities with technologies that supplement their areas of expertise and add to their core strengths.
For example, Mahle, the German car parts manufacturing company, has expertise in filtration in the automotive industry. Thus, their acquisition of an ultrafiltration company, InnoWa Membrane GmbH, makes sense because it correlates to their area of expertise in filtration.
Identifying and Assessing Acquisition Targets in Key Market Areas
The BlueTech Forum showcases a list of twelve specially selected companies at various development stages to present in three key themes: Oil & Gas, Food & Beverage and Smart Infrastructure. These companies are active in the key growth areas we have identified: water re-use and alternative water, unconventional fossil fuels, and energy and resource recovery.
- The Norwegian company, Zeropex, recovers energy from water distribution networks and generates distributed power, which can reduce operational costs for water utilities.
- MIOX produces on-site disinfectants and mixed oxidants for municipal and industrial applications.
- Magpie Polymers recovers and enables recycling of rare and precious metals, and reduces metal content in industrial waste-water to stay in-line with increasing regulation.
- QUA uses advanced membrane products for the water, wastewater, and water reuse markets.
- Aquionics and Crystal IS will present on one of the potentially most disruptive technologies in the water technology market: UV LEDs.
- ANDalyze uses catalytic DNA technologies to enable rapid detection and monitoring of contaminants such as trace metals.
(For the complete up to date list of companies presenting visit www.bluetechforum.com )
In summary, three key reasons for a company to make acquisitions include:
- To future-proof water technology portfolios and address the changing landscape
- To enable access to new market growth opportunities
- To enable new entrants to enter the water technology market and fast-track growth
The next article in this series will focus on three key water technology market growth areas and will provide details on key new market areas and opportunities.