Caged dogs in the Château de Beguin
Published April 20th, 2017
Is the water industry like a wheel, like climbing a mountain, or like a dog trapped in a cage? I found myself wondering about this during a training session Amane Advisors had arranged for its new staff at the Château de Beguin in the depths of La France Profonde this week.
My experience of the water industry is that far from being a steady dependable business that just keeps chugging on whatever is happening in the rest of the economy, it experiences surges of interest in different areas which rise and fall in a cycle of four or five years. For example, when I bought GWI in 2002, it was very much focused on the international private water market, which by that stage was on the way down, having peaked in 1999. We then caught on to surging interest in desalination, which in turn peaked in 2007, and then from 2010 to 2014 we did quite well from industrial markets, especially mining and oil and gas.
Amane has similarly seen quite dramatic changes in where its revenues are coming from. When I first invested four years ago, its bread and butter business was advising clients on how to grow into new markets. Clients might be new technology companies looking to accelerate their growth, or established businesses developing new product lines and wanting to understand the voice of the customer. Today, advice on mergers and acquisitions – both representing sellers and assisting buyers – is the thing that is most in demand. Reflecting this surge of interest, this month’s Need to Know section of GWI reports on 12 different deals. Perhaps acquisitions have become cheaper and easier than organic growth.
My job at Château de Beguin was to tell the Amane staff what the next big thing would be. Nobody who reads this column regularly should be surprised to hear that my answer was “digital”. It seems to be coming at us from all sides now. Almost all of the investors we talk to want to hear about digital and nothing else. Early adopter utilities are beginning to show dramatic results from their investments, and the telecoms and technology firms behind the Internet of Things, big data, and machine learning have begun to identify the water sector as a significant potential market.
Amane has been positioning itself for this over the past year, first taking on Geoff Gage, who was formerly a partner at McKinsey, and more recently Gigi Karmous-Edwards from Fathom. But managing partner Thierry Noel was not going to allow himself to be carried away by my presentation. “Will this be the same as everything else, and gone in five years’ time?” he asked.
That’s what got me thinking about wheels, mountains, and dogs in cages. Are these industry fads which go round in circles – ideas which we had in the past getting repackaged and returning as new? Alternatively, do they represent continuous progress towards a distant goal, albeit along a route with many switchbacks and traverses? Or is our industry like a dog in a cage, desperately barking and scratching, trying every possible way to escape a dismal and inevitable fate?
The answer is probably all three. There is always hope for an easy way out of the difficulties of the water sector, whether it is private finance, new technologies or better management, but the fragmentation, politics and risk aversion of the water sector lead to inevitable disappointments. In that sense we are like dogs in a cage. At the same time, there is a continuous dynamic between the fact that water is a vital necessity and those obstacles (fragmentation, politics and risk aversion) which means that ideas continuously go backwards and forwards. Finally, there is continuous progress because the challenges the world is facing in relation to water as a result of urbanisation, climate change and the need for environmental protection are always getting tougher, and these are challenges we cannot fail to address.
Of course the digital theme will be like everything else in water. But at the same time it will also be different. Like globalisation, the digital revolution is something that has been turning the rest of the world upside down for fifty years. Water has been a latecomer to the party, but it is not going to go back.