(don't) Waste Water! | Water Tech to Solve the World

Why Everyone's Betting BIG on Water in 2024

·13 min·1 clip

Georg Fischer's stock jumped 15% after deciding to sell everything but its water division, reversing a decade-old trend.

The episode opens with Georg Fischer's stock jumping 15% after announcing it will sell off two-thirds of its business to become a water and flow pure player. This contrasts sharply with General Electric's 2015 divestment of its water division, which was seen as low-growth. The host, who works at GF, provides full disclosure and sets up the central question: what changed in a decade to make water technology so valuable? He reviews GF's recent sell-off of its machining solutions division for 630-650 million Swiss francs and its evaluation of the casting solutions division. The comparison with GE highlights a reversal: where conglomerates once spun off water arms as 'slower growth, low-tech,' they now focus on them. The story of Evoqua illustrates this shift; it was passed between companies with decreasing valuation but is now worth over $7 billion as part of Xylem. Market projections from Global Water Intelligence and XPV indicate water tech companies' total value will rise from $290 billion to $1.4 trillion between 2024 and 2034, a 4.8-fold increase. Capital deployed in water security assets is expected to jump from $3.8 trillion to $12.6 trillion. GF's 2023 financials show its water division generated 286 million Swiss francs in operating profit, nearly twice as much as its other arms combined. Other examples include DuPont splitting into three companies to create a water solutions provider with $1.5 billion revenue and 24% operating margin, and Danaher spinning off Veralto, its water analysis and treatment businesses. The host notes that investors valued Veralto's water assets more than Danaher's remaining portfolio. An analysis by Christopher Gasson for GWI compares Veolia and Xylem: Veolia has six times Xylem's revenue but a lower valuation because Xylem is a water tech pure play. This suggests activist investors might push to spin out Veolia's water tech arm for higher valuation. The host identifies three main growth drivers: water quality regulations requiring tripled investment, infrastructure renewal needing doubled investment, and water scarcity demanding a five-fold increase in spending on desalination and reuse. The water management market, worth $1.9 trillion, offers high margins, with companies like DuPont, Veralto, Xylem, and GF reporting operating margins between 16% and 24%. The shift has attracted private equity backing for firms like Gradient, Nihus, and H2 Innovation. GF's strategy involves selling non-water assets to quickly rebuild 'dry powder' for mid-sized acquisitions in the 75-125 million Swiss franc range, as explained by CFO Mats Jørgensen. The episode speculates on future consolidation, such as Xylem potentially acquiring DuPont's membrane technologies or Pentair making similar moves. It concludes by emphasizing that water tech is no longer seen as a cost center but as a strategic, high-margin asset driving industry transformation.

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