Who will buy Weir Techna?
- From: Vol 6, Issue 3 (March 2005)
- Category: Companies
- Region: Europe
- Related Companies: General Electric (GE), ITT Industries, PricewaterhouseCoopers, Pridesa, RWE/Thames (Water), Sidem, Siemens and Weir
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It is not an easy sale, but it is a real opportunity for someone with vision. Christopher Gasson takes a closer look.
Finding a buyer for Weir Techna will be very much more difficult than finding a buyer for the other desalination company currently on the market, RWE Thames’ Pridesa. Whereas Pridesa can expect interest from thermal desalination specialists in the Far East as well as industrial giants such as GE, ITT and Siemens, Weir will find it hard to draw the crowds.
There is a widespread, if misinformed, belief that membrane desalination will rapidly take market share from thermal desalination, and the likes of Weir Techna – which is perceived as a thermal house even though it has some membrane experience – will be the loser. The low profitability of Techna, and its failure to secure any MSF contracts in the past five years, might suggest that the company is a weak player in a weak market.
In fact, the reverse may be true. Membrane desalination will probably be the norm outside the Gulf and North Africa, in markets where high energy costs mean high operating costs rather than greater affordability. In the Gulf and North Africa, the combination of rising water and power demand will ensure that thermal desalination continues to enjoy strong growth.
Although Techna has been unable to hold on to its position in MSF desalination in the face of competition from Fisia and Doosan, it is number two in the MED sector, which is perhaps more interesting. MED matches the performance of MSF in terms of steam consumption ratios. However, it beats MSF in terms of electrical power consumption in pumping. This makes it an attractive proposition for electrical generators who want to maximise their power output from a combined water and power plant.
MSF continues to be considered the more robust technology – parts are big enough for sponge-ball cleaning, which reduces the scaling problem. It also has the edge in terms of economies of scale: the largest MSF unit is 16.4MIGD (73,000m3/d) in Shuweihat, compared with the 8MIGD proposed for Sharjah. However, MED units are growing at a faster rate than MSF units, and in time the benefits of MSF may be eroded.
But the money is not necessarily in the big projects. The margins for EPC contractors in the big IWPP projects are very slim. As plants get bigger, the project execution risks grow. Small- and medium-sized private and industrial projects – particularly where electricity output is an issue – are a more lucrative niche.
With a more entrepreneurial approach, Techna could challenge Sidem for leadership of the MED market. Also on the positive side are Techna’s interests outside desalination, in industrial processes such as sulphate removal for the oil and gas industry, and gas storage. Again, high oil prices provide strong scope for growth in these highly specialised markets.
This suggests that the ideal buyer for Weir Techna would be a private equity player with an interest in turning the business around and selling it on in three or four years time. Such an acquirer would probably put an end to Weir’s ambitions in the MSF sector. The balance sheet requirement to compete for large MSF projects are probably greater than a private equity house would be prepared to finance. Within three years, it could be turned into a highly profitable specialist industrial process contractor that could be sold on to a larger industrial player for a big margin.
But the real challenge for PricewaterhouseCoopers is not to find the best of the bottom fishers looking for a quick turnaround. They need to find someone who will pay a full price for the business now. To find that sort of value for Weir, PWC will probably have to go to China.
A Chinese contracting concern which can manage the execution risks of large projects but lacks the technological standing and access to markets to compete with the Japanese and Korean yards could knock the private equity houses out of the market for Techna. The rapid growth of power demand and water shortages in the north-east make MED technology an attractive proposition in the Chinese market. Additionally, there would be scope to exploit Weir’s membrane expertise and revitalise its competitiveness in MSF on a lower cost base. The current level of China’s trade surplus suggests that the money could well be there for such an acquisition.
See also: Weir Techna sale moves ahead