logo footer March 6, 2019

A Glimpse into The Future of Water

On February 27, Amane Advisors co-hosted our first ever investor day “The Future of Water” with RBC at the Princeton Club in New York City. An audience of over 130 representatives from institutional and private equity investors gathered for a full day of panel discussions featuring C-level leaders from some of the biggest players in the global water market, including American Water, China Water Affairs Group, Culligan, Danaher, Evoqua, Pentair, Suez, Watts Water, Xylem and 3M. We also heard from up-and-coming companies like AquaVenture Holdings, Fluence and H2O Innovation, as well as the public water sector, represented by the Commissioner of the New York City Department of Environmental Protection.

 

WHERE IS THE MONEY IN WATER?

The day was kicked off with a keynote address by Christopher Gasson, the publisher of Global Water Intelligence, who set the stage for all subsequent discussions by asking the question “Where is the Money in Water?” He showed that while the bulk of global water spending may be in utilities, the fastest growth in the sector is being seen in household and industrial treatment.  Driven by regional scarcity issues, water reuse is expected to show continued global growth, while the emerging “midstream” segment dealing with the collection, treatment and storage of produced water from oil & gas production has been the darling of US private equity investors over the past year.

Opening remarks by Amane Advisors Managing Partner for North America Bill Malarkey

In keeping with that theme, moderators Bill Malarkey of Amane Advisors and Deane Dray of RBC kept each of the day’s panels focused on the growth and investment implications presented by the trends and opportunities in their particular segments.

 

DIGITAL ADVANCEMENTS EXPECTED IN RESIDENTIAL AND COMMERCIAL WATER

The first panel, “Winners in Residential and Commercial Water”, saw our speakers from 3M, Culligan, Pentair and Watts Water unanimous in their positive outlook on the growth opportunities in their segment, both in developed and developing markets.

Scott Clawson and John Stauch, the CEOs of Culligan and Pentair, respectively, discussed the opportunities that are being presented by concerns over water quality in emerging markets, as well as growing demand for higher-end “designer water” offerings in North America and Europe.

With its greater focus on the commercial segment, Shashank Patel, CFO of Watts Water, said they are finding customers very interested in seeing improvements in both water quality and energy efficiency, as well as improved life cycle costs of equipment.

Yolla Levitt, VP with 3M Separation and Purification Sciences, said they are able to leverage the technological advances being made across 3M’s vast materials science portfolio to drive improvements in both residential and commercial offering.

In addition to seeing great opportunities in the sector, there was one other point of clear agreement among the speakers: smart technologies and IoT-enabled products will play an increasingly important role for both residential and commercial offerings going forward.

Panel speakers from 3M, Culligan, Pentair and Watts Water sharing about opportunities in develop and developing markets

 

“ACQUIRORS OF CHOICE” FOR NEW SMART WATER TECHNOLOGIES

Moving on directly from that topic, we discussed “Fast Movers in Smart Water Technologies” with the speakers from Danaher (Hach), Evoqua and Xylem. Each of these companies has made significant additions to its technology portfolios in recent years, mostly through M&A rather than internal development.

Kevin Klau, the President of Hach, talked about the ongoing search for new technologies in both monitoring and purification, with the constant goal of building a more complete range of offerings. Clients want solutions that reduce the risks of their core business and one needs to move from sensors to risk management solutions.

Ron Keating, Evoqua’s CEO, related how the company’s recently launched Water One offering utilizes data intelligence to improve industrial customers’ water operations, including system optimization, predictive maintenance, and pay-by-use billing and pricing.

Xylem’s CFO, Mark Rajkowski, discussed how some of the company’s recent acquisitions, such as Pure Technologies and EmNet, use data analytics to help utility clients more effectively deploy capital to improve their underground assets.

There was agreement, that companies such as theirs will remain the “acquirors of choice” for new technology companies on the cusp of commercialization, due to the market access and ready-made sales channels that they can offer.

 

WATER UTILITIES IN SEARCH OF INNOVATIVE TECHNOLOGIES

Our panel “Water Utilities of Tomorrow” offered perhaps the widest range of perspectives during the day, featuring speakers from the largest US investor-owned water utility (American Water), the largest US municipal water utility (New York City DEP) and a publicly traded Chinese water utility which has transitioned from being a state-owned enterprise and owns its assets jointly with local governments (China Water Affairs Group).

These utilities each face very different challenges, but each is looking to new technologies to help them improve service levels and drive operating efficiencies to keep customer rates under control.

Brian Chin, American Water’s SVP for Strategic Financial Planning, talked about how the company is using innovative technologies such as predictive artificial intelligence (AI) to be more efficient in its field operations, and how this supports the “8 to 1 rule” that every dollar of savings in operations translates to $8 in potential capital investment without impact to rates.

Vinnie Sapienza, the DEP Commissioner, talked about how the Department has been able to increase revenue collections while also reducing non-revenue water and significantly reducing Opex through the installation of over 834,000 smart meters, all remotely read.

The Executive Director of China Water Affairs Group, Michelle Liu, discussed how her utility, which serves a population of over 20 million across 20 Chinese provinces, has invested in both smart metering and advanced control systems to reduce its non-revenue water rate from over 20% to 8% in some of its cities today.

Each of the speakers expect new technologies to continue to transform their businesses, especially in the areas of asset management, network optimization and customer engagement.

 

MORE WATER PURE-PLAYS EXPECTED IN M&A

During a panel that was no doubt eagerly awaited by our investor-heavy crowd, the industry veterans who discussed “Investing in the Global Water Sector” made two points very clear:  water is neither the “next oil” nor the “next gold”, and there is no such thing as a single “water sector.”

Speakers representing an institutional investor (Matt Sheldon, KBI Global Investors), a private equity group (David Henderson, XPV Water Partners) and a group that has invested in both areas (Marc Robert, Water Asset Management) described the peculiar attractions and pitfalls of investing in water-related opportunities, as well as their own approaches to weighing both the potential upside and risk of individual water investments. Contrary to popular belief, the panel pointed out that water is not completely recession-proof. In terms of opportunities, they do expect to see an increasing number of water pure-plays in the markets, much in the way that Xylem and Pentair came to the market in recent years.  Finally, while ESG (Environmental, Social and Governance) investing is already a major topic for European investors, the theme is just emerging in the US, although they do expect it to continue to gain increasing traction.

 

MORE IMMEDIATE GROWTH IN REUSE THAN DESALINATION

In our discussion of “Where Desal and Reuse Are Headed Next”, we heard from three growing players who are active in both segments. Each saw some promising opportunities in desalination, particularly in the Middle East, Africa and Latin America, where Henry Charrabé, the CEO of Fluence, described some of the company’s recent project wins. In the US, however, permitting issues and public perception issues continue to hold back the desal market.

Our panelists saw the more immediate growth prospects in water reuse. Guillaume Clairet, COO of H2O Innovation, recounted some of his group’s successes in the booming California reuse market, while AquaVenture Holdings Chairman, Doug Brown, explained his vison of leveraging the wastewater treatment expertise gained in their recent acquisition of AUC to play in the reuse segment in Texas and the Southwestern United States. With substantial advantages in both production cost and ease of permitting as compared to desal, we should expect to see reuse continue to be the go-to solution for communities or industrial customers dealing with supply challenges.

 

CREATING DATA DRIVEN ORGANISATIONS TO TACKLE WATER INDUSTRY CHALLENGES

Finally, we convened what Deane termed the “brain trust” of the industry to identify “The Next Big Things in Water.”  In this last hour the audience enjoyed a wide-ranging discussion led by Snehal Desai, Chief Growth Officer at Evoqua; Phil Rolchigo, CTO at Pentair; David Stanton, President of Suez’ North American Utility Operations; and Albert Cho, Xylem’s VP and General Manager, Advanced Infrastructure Analytics.

Wrapping up with a discussion on The Next Big Things in Water

 

There was general agreement that the ability to create data driven organizations will help to tackle a number of the major challenges confronting the water industry, including driving consolidation in the overly fragmented utility landscape.

Harnessing the potential of these new technologies will also help the industry to confront its accelerating brain drain as the baby boomer generation continues into retirement, while also driving performance optimization that will help to keep water service affordable for all customers. In-home treatment and testing will also see customers take more ownership of the quality of their water supply, while also raising their expectations with regard to service levels.

 

Thank you to all the panelists and participants, as well as our friends at RBC, for making this inaugural event such a success. Looking forward to seeing you all at the next one!