Getting your technology noticed
The water industry may be slow to take up innovative technology, but Nicholas De Mestre, an associate of FourWinds Capital Management, has some useful advice for companies seeking investment and new routes to marketThe UK water industry has typically been seen as one where innovation and the introduction of new technologies have been extremely slow. This has partly been driven by the cost of new infrastructure, Ofwat's goal of keeping water tariffs as low as possible and partly by the existence of reliable, tried and tested water and wastewater treatment systems which have been proven over a very long period of time creating a mentality of "if it isn't broken, don't fix it".
However, recent changes in legislation coupled with ageing infrastructure and the need for ever greater capacity have led to a drive for more efficient solutions and this, in turn, has driven a culture of technology innovation in the UK and Europe.
Despite the utilities' needs for solutions which give them greater energy efficiency, reduce their carbon footprint and keep capital expenditure to a minimum, bringing new technology to the water market is still a long hard road, typically travelled slowly.
However, there are enormous advantages for a technology supplier to have their product approved by one of the UK water utilities - such is the respect for our water industry and its exacting standards that the approval of a piece of new technology by one of the UK regulated players will act as a stamp of approval allowing for a swift roll out globally to regions with similar problems.
An example of this is Bluewater Bio (BBI), one of the Aqua Resources Fund's portfolio companies. BBI is the owner of an innovative, advanced biological wastewater treatment technology which gives water utilities an efficient wastewater treatment method and savings in terms of both operating expenditure and capital expenditure as well as in terms of footprint.
The technology is proven as demonstrated by a successful roll out in over 20 reference plants in Asia. In Europe, BBI has been operating two pilot plants, one on a Severn Trent site near Birmingham and another one on an Aqualia site near Avila in Spain (see WWT November 2009).
This model has worked extremely well with BBI, Aqualia and Severn Trent publishing joint results in November last year. An roll out of the technology is intended to parts of the Middle East, where local water companies are struggling with insufficient infrastructure, huge population and industrial growth and, for many of the Gulf states, a lack of available land for large scale installations.
There is also a significant opportunity for expansion across Central and Eastern Europe where new entrants to the European Union must rapidly bring their water treatment infrastructure in line with a level which will allow them to comply with stringent EU legislation. In these cash constrained times, it goes without saying that efficient, modular solutions where capital expenditure is kept to a minimum will likely be the key.
This also highlights one of the key things that companies with innovative technology can do to attract investors - any strategic relationship with a large water utility, even where the utility does not put capital at risk, will help investors see a defined route to market for the new technology. This also gives investors a sense that, whilst the technology may not yet be commercialised as such, it is credible and at a much more advanced stage than technologies which are still at the conceptual stage.
Another way in which water technology and treatment businesses can make themselves attractive to investors is to formulate a strategy that will reduce the "lumpiness" typical of businesses which are focused mainly on technology sales.
A strategy focused on asset ownership or operations and maintenance, alongside equipment sales, will allow investors to have greater confidence that the business has longer term, locked in baseline revenues which help stabilise the business and reduce the risk inherent in investing in the roll out of new technologies.
This will also encourage investors who are "technology agnostic" to invest as they can rely on the recurring business rather than having to take a strong view on technology alone.
We see a lot of opportunities in this area with established turnkey solution providers, and Aqua Resources Fund (ARF) has agreed to invest £17.6M into a Belgium-based business called Waterleau Group that has decided to expand its business with more service based revenues via a build-own-operate model.
Waterleau Group has already established itself as a major player in the wastewater treatment turnkey business, in the industrial and municipal sectors, with a proven and proprietary biological treatment technology.
Alongside ensuring a defined route to market and smoother revenues, companies looking for investment must ensure that their technology targets a market or geographical region where innovation is required.
It is this need that will guarantee the growth, which will give investors like the Aqua Resources Fund their returns, as well as a good understanding of how their own technology compares to its competitors in terms of cost and performance.
In terms of focus, ARF sees key growth areas as being industrial wastewater treatment, especially from the likes of food and beverage businesses through the provision of UASB technology, and the chemicals and power industries through systems focused on zero liquid discharge and flue gas cleaning.
These are markets where new legislation, a desire on the part of customers to outsource a non-core asset, and development of efficient new technologies are combining to create a unique opportunity.