Friday, May 13, 2016 5:08:22 AM
Written by Erik Hromadka
Water Financial Acquisitions
The water sector should be paying attention to two announcements this month in regard to significant deals that indicate growing investor interest in the 2016 “smart water” space.
The acquisition of Opower (NYSE: OPWR) by Oracle (NYSE: ORCL) is a clear move by a major tech company into the utility sector; an area with great potential for innovation and some significant challenges in terms of culture and willingness to embrace change.
Those of us who have been watching the smart water space begin to develop took note when Opower went public in 2014 at $23 a share and provided a vehicle of investing directly into the proposition of using data to improve utility service to customers.
While focused on the electric industry, Opower’s concept of providing utility customers with better data on their consumption and how it compared to their neighbors is a topic that we have also been exploring for water. Measuring, monitoring and mining data to improve efficiency has great potential to create demand-based solutions for both utilities and their customers.
Oracle understands the benefits of cloud-based solutions where such data is processed without requiring on-site computing power and personnel, something that helped Opower connect with 60 million utility customers worldwide. The use case for that benefit is also considerable for water utilities, which are far more fragmented into smaller organizations that are less likely to have in-house IT departments.
The $532 million cash deal for Opower provided a nice premium from recent trading levels, but the $10.30 per share was less rewarding for early investors.
The second announcement of interest to our sector was the possibility of a sale at Badger Meter (NYSE: BMI), news that sent the Wisconsin company’s market cap to $1 billion and is likely to create even more interest in smart meter and water data technology. Badger’s automatic meter reading systems have been driving sales at the company, which just topped $100 million in a single quarter for the first time.
In addition to its growing meter business, Badger has also been a catalyst in the emerging network of national water clusters. CEO, Rich Meeusen, has been an active and vocal supporter of the Milwaukee Water Council and its success in attracting water investment and encouraging start-up innovation during the past five years.
Investors interested in meter companies got a preview of demand last summer when Honeywell International (NYSE: HON) acquired Elster Group, which provides water and gas meters, from UK-based Melrose Industries for $5.1 billion. That valuation, reported at 3.1x sales and 14.3x EBITDA, provided some nice incentive for consideration of the “Internet of Things” or “Industrial Internet” by tech investors who want alternatives to seeking remaining unicorns among the Internet 2.0 companies.
The smart meter space is at a key connection of the People + Pipes + Policy framework that we have created at Global Water Technologies (OTC: GWTR) and providing better connections for customers and their water infrastructure is emerging as a top water topic in 2016. Rising water rates and problems with scarcity will drive customers to demand more and better data from their utilities. New tools to provide better data will allow utilities to improve both customer service and operational efficiency.
It will be interesting to see how the smart water market continues to develop with technologies to meet those demands.
Erik Hromadka
Erik Hromadka is the CEO of Global Water Technologies (OTC: GWTR) in Indianapolis, Indiana. He has been promoting the use of innovative new “smart water” technologies to improve efficiency and reduce water loss since 2010. He has been active in regional water cluster activities and working to bring some of the faster innovation of the tech sector into the water industry.
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