The show-stopper BlueTech Analyst Alert last week was:
‘DuPont has canceled its plan to spin off its water treatment division. The company has decided retaining the water business within its portfolio offers greater strategic flexibility and aligns with its long-term growth strategy”.
Why we think it’s interesting:
The DuPont water business is a strong business and DuPont knew this, before they made the announcement to divest last year. It’s likely they realised they were not going to get the price multiple they were hoping for.
The market hates uncertainty and this is an about turn, no matter how it’s spun.
In many ways, it’s the type of water business that Siemens and GE would have like to have bought. A company with a dominant Top 3 position in key defining work-horses of the water technology industry: IX, RO and UF/MF. These technologies are analogous to the jet engine on an airplane, or the steam turbine in a power plant, or as close an approximation as one can ever get to this, in a highly fragmented technology market.
Instead GE and Siemens both bought businesses that were a bit more like a Home Depot general store of water technologies. Good businesses, just not the types of businesses that suit GE and Siemens.
DuPont may have realised that there is a small universe of strategic buyers out there for a products business of this size, given their place in the value chain.
Some major solutions providers and systems integrators may shy away from complete vertical integration which limits choice and hitches their wagon to one set of solutions (albeit, there is some might say too much choice, in the UF portfolio). And equally for the IX RO and UF businesses, it shrinks the universe of downstream buyers in the value chain, who may be competing with the parent group to win contracts.
That leaves, New Entrants, who are keen to move into water, e.g. the likes of MANN+HUMMEL (no longer a ‘new entrant’ at this stage), a Johnson Matthey who entered and quickly left, or a group like Parker Hannifin that has the critical mass and some presence in water already. Or, private equity players, but the valuation will never be as good as one could get from a strategic buyer, which may have prompted DuPont to hold on to it, at least for now. The door appears to remain open, if the right offer comes along.
There is no doubt that the future is bright for the DuPont water technology portfolio.
In the PFAS remediation and treatment market, IX is a critically important workhorse technology and the outlook is for strong growth, no matter what scenario you consider. Equally when it comes to municipal and industrial water re-use, where the only way is up in terms of growth, RO and UF are the Key-stone species in that technology ecosystem. It’s an enviable trinity and they are a Tier 1 player in each area.
If you are interested in more detailed insights on the water acquisition landscape dm or reply ‘interested’.
