Finding M&A opportunities in a COVID world
January 2021 - While performing traditional due diligence in the current environment has been difficult, it is not impossible. The old adage, “where the is a will, there is a way” certainly holds true with M&A.
We continue to see buyers for both high quality assets and strategic adjacencies to existing businesses. Buyers with resources have not reduced their appetite, and many are looking for opportunities from sellers that are increasingly becoming aware of resources, infrastructure, and scale provided by a larger partner.
Remote Meetings and Industry Relationships are Key to Getting Over the Finish Line
Although COVID-19 and the resulting travel restrictions have made due diligence more difficult, remote meetings, and even facility tours have allowed processes to continue. Existing relationships with the counterparty and the reliance of a strong network for due diligence can help the process move forward despite the inability to conduct onsite visits. Thales partner, H2O Insights, has worked with both buyers and sellers on commercial due diligence for transactions during the pandemic; and while not optimal the virtual meetings can still keep the process alive and eventually result in completion of the transaction. For some companies, the face-to-face meeting will be critical and completed post an LOI and final due diligence completed. There is clearly an advantage for strategic buyers that understand the business and already have met the management team through trade shows or other industry events, there is an advantage, and companies like Danaher, Xylem, and Saur are well positioned to capitalize on the opportunity, provided they keep in mind assets are not at fire sale prices, simply sellers have more realistic expectations.
Follow-Up to Nijhuis
In the January issue of The Fountain, Thales Partner, David Rose, provided an interview with Menno Holterman of Nijhuis. In our view, the company was one of the better positioned companies to leverage its technology, engineering capabilities and understanding of decentralized water and reuse, particularly in the industrial vertical. We were not alone, and on June 18th, Saur announced the acquisition of Nijhuis Industries, creating a ~US$220 million industrial water platform, to be headed by Menno. There are few companies of this size that provided technology, distribution, and management, essentially a turnkey growth platform for international expansion. Importantly for the Nijhuis leadership, there is support for innovation, and that was critical. This is not about cost take-out, but about building an innovative platform, and leveraging corporate relationships.
Digital Remains Attractive
On July 14th, Danaher announced its Water Quality platform acquired Aquatic Informatics, a leading provider of water data management software. The acquisition fits squarely with the Water Quality platform’s goal of digitizing water quality monitoring and fits with Claros to develop a more intelligent water solution for customers. With revenues of approximately $20 million, the acquisition provides enough scale for the platform, but is still relatively small. However, the ability to leverage the offering across Danaher’s platform should provide substantial growth.
More than Blowing Bubbles
KKR and XPV continued to build their water quality platform (Nexom/EOSi) with the acquisition of Environmental Dynamics International (EDI), a leading provider of aeration systems. This allows the platform to better serve the treatment needs of facilities of all sizes. EDI is known for their engineering capabilities and is one of the leaders in aeration diffusers, while Nexom and EOSi are leaders in nutrient removal, helping to build a more complete offering for wastewater treatment.
The Other WaaS Piece
On March 30, Morgan Stanley Infrastructure Partners (MSIP) acquired Seven Seas, the former operating segment of AquaVenture Holdings that focused on desalination and decentralized contract/leased water operations (including assets from previously acquired AUC). This transaction was easier to close as much of the due diligence was virtually complete by the time travel restrictions began.