WET News

6 WET NEWS OCTOBER 2014 Once companies are generating £1M-plus profits and turnovers in excess of £10M, then prospective buyers will emerge Water sector on brink of major consolidation • As the industry sees more takeover consolidation expect more acquisitive activity in the UK market as international investors scout for scalable technologies, says Wheelocks boss Matthew Wheelock. C onsolidation in the UK water industry is gather- ing apace. As reported by WWTonline last month, engi- neering consultancy Mott Mac- Donald has snapped up its de- sign-and-build joint venture partner, Bentley Holdings, while Dutch consultant Ar- cadis is still pursuing a merger with London-based Hyder. This comes in a year where global giant GE has bought out privately-owned UK anaerobic digestion specialist Monsal in March, and a near miss saw the anticipated merger of contrac- tors Balfour Beatty and Caril- lion fall through, at least for now. But these examples are just the first whisperings of what analysts expect to become a boom in acquisitive activity. The utilities themselves are not immune, with Ofwat indicating that it is so†ening its stance on takeovers. There is currently a down- ward acquisitive pressure on the UK water sector from both national and international forces. Without exception, every water-related company we have spoken to in the past 12 months, with a turnover greater than £3M, has been approached to sell the busi- ness. Such offers are o†en being made on a monthly basis. Once a business generates profits of £1M or more and/or turnover in excess of £10M then purchasers will emerge. Unsurprisingly, companies generating good sales – £5M and £10M being the magic markers – and that are growing or expanding, will fare best as buyers muscle in. Best chance What is now being observed is that companies below this threshold are also being eyed for takeover. To profit from this window of opportunity, small- to-medium enterprises (SMEs) need to be proactively market- ing their businesses and mak- ing sure they are visible. By getting their house in order and raising their profile, companies give themselves the best chance of showing up on the radars of prospective purchasers. Market analysts have been saying for some time that the UK water treatment sector cur- rently has too many companies offering similar products and services. This has resulted in an erosion of overall margins, causing some less robust com- panies to fall by the wayside. The indications are that the sector is ripe for a period of consolidation, much like the IT sector was 15 years ago. SMEs should be investing for the future, demonstrating that they are prepared to secure the best talent for their businesses and proving that they have robust management strategies in place. Investors will be looking for companies that are not only creating growth, but are able to demonstrate that their growth in sales is sustainable over the long-term. At present, margins are get- ting thinner for all companies, but this will not continue indefinitely. Once the period of consolidation is over, utilities be warned, the remaining com- panies can expect to be in a position to demand higher prices and will be more profit- able – the board at Carillion anticipated reducing the cost base of the proposed merged group by a healthy £175M a year, had it gone ahead. Unique market offering Companies surviving the con- solidation period will be those with a solid unified approach. They will be stronger, leaner and will be in a stronger nego- tiating position than before. The remaining companies will generally be larger, but those companies with a spe- cialised or unique market offer- ing will also be in a stronger negotiating position than before. International investors are looking for companies with technologies that are desirable, transferable and scalable to the global market, with the US$4B+ (£2.5B) Indian water market currently attracting particular attention. SMEs in the UK are in a unique position, being based in the country with the most privatised water sector in the world. Many of the owners of the privatised English water utilities, o†en overseas funds, are looking to benefit further from the low risk and predicta- ble returns granted in this highly regulated market. Indi- cations are that their horizons are broadening to explore addi- tional opportunities in the sector. Scientific approach The message for contractors, treatment companies, technol- ogy companies and anyone else looking to maximise the opportunities brought about by consolidation in the market is: act straight away. Adopt a sci- entific approach to sales with the aim of delivering com- pound growth, while putting in place a plan to get your busi- ness noticed. Engaging the services of a specialist business develop- ment consultancy like Whee- locks can help in identifying suitable investment partners and maximising companies' potential. Growth and greater visibil- ity are accepted goals for any business, but at the moment, there are considerable addi- tional benefits. The message for utilities is – expect more change across the sector, keep a close eye on the market and plan for price rises across the supply chain in the medium to long term. The UK water industry is in for a turbulent time and will be a leaner place in which to oper- ate once calm returns. n Matthew Wheelock is chief executive of Wheelocks "SMEs in the UK are in a unique position, being based in the country with the most privatised water sector in the world. Many of the owners of the privatised English water utilities, often overseas funds, are looking to benefit further from the low risk and predictable returns granted in this highly regulated market" YOU SAY "Global CE consolidation continues driven by listed companies. Arcadis prevails with Hyder" @grbeaton_psf "@WETNews Would understand contractors, but engineering firms and contractors? Who next... " @IBS_EPLtd, commenting on Mott MacDonald's takeover of Bentley Holdings "Hyder Consulting bought out by Arcadis. Interesting" @JBakerCivilEng "...Wow! Another mega- consultant is just what the world needs." @engineer_Colin "Really excited that JN Bentley have joined @ MottMacDonald and the opportunities that working together as one will bring" @PaulFurseCEng News+

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