Water Industry Consolidation a Slow Moving Process

Industry consolidation, while seemingly moving very rapidly due to some big splash announcements of late, actually is still moving at a snail’s pace. I base this statement on the fact that while perhaps a dozen companies have changed hands this year, there are still hundreds if not thousands of small to medium sized companies in the industry.

One of the reasons that I believe contributes to the slow movement of the industry, particularly as it relates to companies focused on the municipal markets, is that the owners and managers in the industry are trained to think in relatively (for American business) long terms. When your product introduction cycles are three to five years, your selling cycle one to 10 years, and you sell equipment that is expected to perform for 20 years, you are forced to look forward just a bit.

Owners and managers in the industry, therefore, tend to have a long view of the process. This makes them reluctant to think in terms of short term consolidation, preferring to explore the market carefully, and then make their moves accordingly. This can be very frustrating to private equity parties, who are used to doing many deals on a fairly rapid pace. It can be equally frustrating to the strategic buyer, who may need more rapid growth to support the shareholders’ expectations on a quarterly basis.

Further complicating matters is the view of our customer base. We work in a complex arena, with multiple buying influences ranging from consulting engineers to municipal owners to contractors. All have varying agendas; all have varying appetites for risk. Most owners do not wish to be the recipient of equipment that is serial number one, and most consultants share this due to the fact that they are charged with a duty to protect the owner.

Consolidation in the industry therefore does create some tension within the customer base, until they are clear that the consolidating entity is going to continue to deliver as good, if not better, products and services. This can, of course, be offset by the consolidator having a strong brand and installation base. All of this is further complicated by the market slowly moving to alternate project delivery methods, which change the relationships of all parties depending on the delivery vehicle.

In conclusion, I don’t believe that rapid consolidation is likely in our industry. I do believe, however, that consolidation is inevitable and that it will proceed at a measured pace. The good news is that the companies that consolidate carefully should achieve real efficiencies and improvements. Those that do not will create opportunities due to their failure. We do indeed live in interesting times.

About the author:

Bob Williams is president of Ashbrook Simon-Hartley, a Houston, Texas-based manufacturer of wastewater treatment technologies. He is also Immediate-Past Chairman of the Water and Wastewater Equipment Manufacturers Association.