Market Trends in the Water and Wastewater Industry
At WEFTEC 2015 in Chicago, WaterWorld's Angela Godwin caught up with Jay Gorman, investment banking vice president with Raymond James & Associates, to discuss his insights into the water/wastewater marketplace
At WEFTEC 2015 in Chicago, WaterWorld's Angela Godwin caught up with Jay Gorman, investment banking vice president with Raymond James & Associates, to discuss his insights into the water/wastewater marketplace.
WATERWORLD: Last year, in your highlights after WEFTEC, you were talking about signs of recovery in the market, and I was curious to see whether that trend continued. Where do you think we are today?
JAY GORMAN: You know, I think we're probably in the third or fourth inning of the recovery in the municipal market. It's still a little spotty. We're certainly hearing from a lot of our clients that their municipal businesses are starting to recover — actually hearing from some of them that their municipal business are the best aspect of their business right now. But [for] some, it's still kind of slow. So I think it's inconsistent but I do think we are in the midst of the recovery.
WATERWORLD: And as always, funding continues to be a pain point in our industry. It's always a topic of discussion and a big challenge. Are you seeing anything out there that looks promising in terms of funding? Maybe innovative financing type arrangements?
JAY GORMAN: You know, it's very good question. One of the topics that we are consistently hearing is coming up with new ways and new models of financing equipment, looking at service-oriented models — sort of subscription-based type of arrangements — where a third party may actually pay for the equipment and provide the financing and then the actual end user is paying on a subscription basis, or it may be a sharing of savings. That's a theme that we're consistently hearing here at the show. And we think ultimately it's going to take some sort of third-party private capital that's going to have to step in and really solve this capital crunch that we have in the market.
WATERWORLD: I want to turn attention a little bit to the drought out in California. We're in our fourth year now with the drought in that state and I'm just curious what the impact has been in the market.
JAY GORMAN: You know, it definitely depends on what sort of segment of the market you're in. You look at what a company like Layne Christensen has done extraordinarily well in California, drilling wells, and so some of the very short-term solution providers have done well. There's still the funding issue. And so for the folks that are providing equipment and services from a more long-term standpoint — people that are building pipes, people that are helping build reservoirs — that's going to be a much more long-term solution. But we do think it's obviously at a crisis level, so the funds are going to eventually start to flow here, probably in the next year or two. But I think we're probably still a year or so away from starting to see significant capital infusion into the California market that will solve a lot of these issues.
WATERWORLD: The last thing I wanted to pick your brain about was innovation because I think last year, after WEFTEC, you said something about there being a lack of innovation in the marketplace. Do you still feel that way? Are you seeing anything at the show this year that maybe sparks your interest a little bit?
JAY GORMAN: You know we haven't fully gone through the show. We've definitely seen some interesting innovation. I think the issue with water in general is that the adoption cycle is so slow that it's an industry that doesn't necessarily reward innovation. I think it comes back to that capital issue, the financing issue: We have to find a way to get these technologies into the market faster and really create the reward for innovation. So, I think that's one of the issues that we have. I'm not sure 100% exactly what the solution there is, but I think it does have to do with coming up with creative financing vehicles so that you can reward innovation, you can get products into market faster. But, we went through the Innovation Forum that's over on the floor, and there's some interesting stuff in there. So more to come, but I think you're starting to see some more innovation in this space.
WATERWORLD: Do you watch at all any of these accelerator programs that are going on, like out in Wisconsin?
JAY GORMAN: I think they definitely can have an impact but, the biggest challenge is, we see a lot of companies — we actually sat in on a forum this morning talking about how there are a lot of companies that start, they're pre-revenue, they prove the technology, they have the ability to get their companies to right around, we think the magic number's right around $10 million in sales, and then there's a real issue scaling them to that next level. And so again, we think it takes some sort of creative financing vehicle, or capital infusion, or some sort of business model. We haven't quite cracked the code on it, but that's what it's going to take to help these companies scale up and get to the next level.