The water sector often reminds me of the idyllic location people visit on their summer holidays, fall in love with and quickly get a romantic notion about how nice it would be to live there year round. The locals blithely respond ‘ try spending the winter here before you make up your mind ’. The Real Estate Agent of course is only too happy to sell them a property, and resell for them again a few years later.
So too it is with new entrants to water. Some of these visitors explore the landscape, stay a few years and eventually get bored or disillusioned and decide it may not really be their cup of tea after all. GE and Siemens are the most high profile examples of companies that did this (although Siemens Energy remains a very active player in industrial water). Chemical companies share similar experiences. Others have even shorter sojourns, and following initial board approval for a voyage of discovery, emissaries are dispatched to go forth, explore, make maps and report back.
We see companies from disparate areas, from automotives to textiles, biotechnology to plastics, all beguiled with the potential of dealing with that simplest and most fundamental of molecules and all that goes with it. Jack Welsh said, if you want to be big, get into big things. But the devil is in the detail when it comes to water. It’s not one big thing, it's not a monolith.
The water sector is like a Van Gogh impressionist painting, when you look at it from afar, it has all the appearances of a beautiful field of sunflowers. But when you get up close, you realize it’s really a myriad of tiny brush strokes of all different colours that somehow blend to give the impression of the overall picture.
Water is often impenetrable to the outsider looking in. Having sat through a management consultancy workshop for a new entrant to water, on the second day, my colleague acerbically remarked that it was like watching 'the partially-sighted leading the blind’; it was an insightful observation. We are often helicoptered in to short-circuit the learning, cut through the fog, point to the light-houses and safe harbours and see if there is something there for these companies, or not, thereby saving both time and money.
There are those newcomers that learn to adapt to the nuances of the sector, become more local than the locals themselves and part of the fabric of the industry. Some investment groups have done particularly well in this regard, such as Danaher and Skion, building significant high quality portfolios. Those technology companies that have grown to become pillars are those that entered by disrupting the status quo - Zenon, Norit, Trojan and Wedeco being good examples here.
One new entrant who may well decide this is not what they thought it was is Johnson Matthey. In the Johnson Matthey 2017 report, water gets the tiniest of footnotes, described as ‘investment in other new opportunities including atmosphere control technologies and water purification’ with an overall operating loss for this grouping of £14.4M. The water business consists of Miox, Finex and some organic elements of the JM business.
Why then should anyone ‘move to’ water? The biotechnology revolution, circular economy opportunities in energy and resource recovery, the increasing provision of decentralised microgrid water systems, the role of IoT and AI in enabling remote operations and improving systems efficiencies, emerging disruptive technologies such as tunable chemically driven desalination, ceramic membranes for water filtration, the point-of-use / point-of-entry revolution in response to emerging contaminants, the huge potential for growth of water reuse, the opportunity in buried infrastructure asset management and climate change adaptation. There are myriad reasons. But just like when you visit that idyllic holiday location, the locals often keep the best secrets to themselves!
- Finance and Markets