Who will buy Siemens Water?
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Christopher Gasson argues that a private equity sale is the most likely outcome, but it is not going to be an easy sell.
The biggest challenge Siemens faces in selling its Siemens Water Technologies division will be finding someone who is more excited about the future of the company than they are concerned about its USFilter past. That is because the company has defeated both Veolia (which lost $4.5 billion on it after buying it from Dick Heckmann for $8.1 billion in 1999) and Siemens (which bought the rump of USFilter from Veolia in 2004).
A mythology has arisen around the company. Those who have tried and failed to run it say it is an unmanageable morass of subsidiaries built up by Heckmann with no care for coherence or profitability, because he always knew he could find a bigger fool to sell it to. Those who have had a happier experience with the business say that Heckmann is the greatest value creator of all time in the water industry, and if others have failed to make sense of USFilter, it is because they lacked vision and leadership. The current CEO Lukas Loeffler falls somewhere between the two camps. He says he has pulled together a profitable and manageable company, but this is somewhat undermined by the fact that Siemens is now looking to sell.
Top of anyone’s list of potential purchasers is probably Xylem, the former ITT fluid technologies business. Other potential suitors include Pentair (which is probably too busy trying to integrate Tyco Flow), Danaher, Ecolab (which owns Nalco), and Rexnord. The problem for all of these trade buyers is that they are likely to be interested in one part of the business but not all of it, and Siemens has said it wants to sell SWT as a single package.
This suggests that a market entrant might be the best buyer. There is a chance the auction might attract Japanese or Korean water treatment companies wanting to break into the US market, but the strongest interest is likely to come from private equity giants. The top five (TPG, Goldman Sachs, Carlyle, KKR and Blackstone) all have some water experience. They will appreciate the scale of the business and relish the challenge of a turnaround, but they don’t want to see another Culligan (the former USFilter company which was bought in 2004 by a private equity company but was ultimately taken over by its debt holder this summer).
It is likely that the key to a successful private equity deal will lie in securing the services of a former USFilter executive. Andy Seidel (CEO from 2000-2005) and now CEO of Underground Solutions, is probably the top pick, followed by Chuck Gordon (CEO from 2008-2010) – if he can be prised away from Heckmann Corporation, where he is now COO.
One of the biggest challenges will be to disentangle the business from the rest of Siemens, which means that getting a clean set of financials will be difficult. Much of the international revenue base is reliant on Siemens’ international network, and it is unclear how much global distribution a private equity buyer will be able to rely on. Similarly, Siemens has worked hard to rebrand everything with its own name, which is not for sale.
It seems unlikely that Siemens will recover the $1 billion it spent on acquiring USFilter in 2004. If the sale drags on longer than next July, Siemens will be lucky to recoup half that figure because of the risk of staff and rep defections.