Will digital water flood us with M&A deals?
Published September 15th, 2016
The next big consolidation in the water sector is going to involve monitoring, control and data management. That is my conclusion from reading some of the early drafts of our new report, Water’s Digital Future: the outlook for monitoring, control and data management systems.
Historically this area has been highly fragmented with a number of specialist instrumentation suppliers existing in a quite separate space from SCADA system providers, who in turn have left the software and data analytics piece to other suppliers, who in turn are quite remote from the physical control of pumps and valves and chemfeed systems which might deliver the response to the analytics. Metering companies existed alongside all of these parties.
This is all changing as utilities and industrial water users begin to understand that there is a big picture here beyond this mosaic of different suppliers. It is a vision of the digital utility which brings together all the different parts of this world of data collection, processing and automation which promises to deliver significant efficiencies with a high return on investment. Put simply there is an algorithm for managing water in the same way there is an algorithm for calling a taxi or finding a date. The last 30 years of Silicon Valley history is finally coming to water.
The big problem is that there is no single company which can deliver the whole lot, and in the “internet of things” there is probably more money in being the internet part than being the thing part. Companies which manufacture things like pumps, valves, and meters are going to have to decide whether it is enough to be nodes of someone else’s smart system or whether they want to be the system themselves. It is a question that will need to be asked right across the supply chain. Do automation companies like Siemens, Schneider Electric and GE have enough of the pieces of the puzzle to drive the vision forward? What about operators like Suez, Veolia and Aqualia? They need to be able to offer smart solutions to their customers in order to differentiate themselves from in-house municipal management. Is it enough for them to buy in other people’s solutions? Engineers like CH2M and Black & Veatch like to consider themselves as providing intelligent solutions to their clients but can they compete against the big IT consultants such as Accenture, IBM and Cisco? And do the latter feel that they have enough exposure to the water sector to make a bid for the space on their own?
Another factor driving consolidation is the divide between the small, fast-growing and profitable activities of the instrumentation suppliers, the data analytics platforms and the software suppliers; and the larger, slower-growth and less-profitable areas of infrastructure supply. It is good news for the shareholders of start-ups like I-Real, Fathom and Takadu, but other much larger mergers and acquisitions also seem inevitable. In that sense you could read our Water’s Digital Future report as a shopping list.