NEWS RELEASE                                                                                        DECEMBER 2016

Who Should Purchase GE Water?

Hundreds of companies in the water business as well as private investors will be considering the purchase of GE Water. The first conclusion in a cursory review will be that this is a group of individual companies which operate independently and are not necessarily in the same markets.  There are companies selling systems and major components, small components, instruments and consumables such as treatment chemicals.

The management of these businesses is challenging because of their diversity.  The way you manage an effort to supply $50 cartridges is totally different than the way you manage an effort to sell knowledge which is bundled into the price of formulated chemicals. The management of a company which sells complete zero liquid discharge (ZLD) systems requires skills not required in some of the other businesses.

Danaher has been mentioned in the media as a potential purchaser.  Their recent Pall acquisition has made Danaher a major player in pharmaceutical and chemical industry filtration.  GE Water is focused more on power, oil and gas, refining and to a lesser degree on various water-related purification.  So, the industry alignment is complimentary.

Xylem has grown the test segment of its transport, treat and test efforts. Its instrumentation or test business is mostly in municipal water and wastewater and compliments the GE instrumentation applications.

Other water chemical formulators such as Ecolab and Solenis and basic water chemical suppliers such BASF and Kemira are also potential purchasers.

Any of the large companies in the air, water, liquid, gas flow and treat businesses with an industry total revenue of $323 billion are potential purchasers.

Air/Water/Gas, Liquid Flow and Treat Revenues 

$ Millions

Product Power Fluid Municipal Industrial and Other Residential/
Commercial
Total
Flow (Water)
Pumps 3 8 14 20 8 53
Valves 7 13 7 39 20 86
Subtotal 10 21 21 59 28 139
Liquid Treatment
Cartridge 0 7 1 6 7 21
Sedimentation/ Centrifugation 1 0 2 5 0 8
Cross Flow Membranes 2 0 4 3 1 10
Macrofiltration 1 0 2 4 0 7
Subtotal 4 7 9 18 8 46
Oxidation and Destruction (Water)
Biological/Oxidation/Destruction 1 0 8 4 2 15
Water/Wastewater Chemicals 5 0 9 10 0 24
Subtotal 6 0 17 14 2 39
Indoor Air Treatment
Filtration/Purification 1 2 0 3 5* 11
Stack Gas Treatment and Flow
Fabric Filter 1 0 0 5 0 6
Scrubber 0 0 1 5 0 6
Precipitator 7 0 0 1 0 8
FGD 7 0 0 0 0 7
DeNOx 6 2 0 1 0 9
Thermal/Catalytic 0 10 0 2 0 12
Fans and Compressors 4 2 2 12 5 25
Subtotal 25 14 3 26 5 73
Monitoring
Air 1 1 1 1 3 7
Water 1 1 3 2 1 8
Subtotal 2 2 4 3 4 15
Total           323

* includes vacuum bags and face masks as well as HVAC

GE Water Coverage  

        

The GE water treatment chemicals business is of greater value as the percentage reduction of end user knowledge to total knowledge continues to shrink.  The formulated chemicals business is more problem solving with the right combination rather than sale of a product.  Knowledge of the applications is critical.  With the development of the smart sensors, the formulators can become remote operators or continuous advisors rather than just offering periodic advice as part of the chemical sale. Will potential investors fully recognize this opportunity?   If they do, the potential buyer will be one who can best leverage this very large potential.  The expertise in the use of chemicals along with filtration, valves, pumps, etc. will all create a very large remote advice, operations and preventive maintenance revenue opportunity.

The various relevant market reports for an evaluation of this opportunity are shown at: Markets

NEWS RELEASE                                                                            DECEMBER 2016

Water Treatment Chemicals Market is Growing Faster than GDP

The expansion of municipal drinking and wastewater treatment in Asia is one of the driving forces which will ensure that growth in the water treatment chemicals market will exceed the rise in GDP.  The 2017 market is forecast at $27 billion.  This is the latest forecast in N026 Water and Wastewater Treatment Chemicals: World Market.  Corrosion inhibitors will be the leading product segment.

Subject 2017
 Total  27,585
 Activated Carbon  772
 Chelants  663
 Corrosion Inhibitors  6,111
 Defoamers  608
 Inorganic Flocculants  3,459
 Ion Exchange  903
 Odor Control  956
 Organic Flocculants  4,497
 Other  1,389
 Oxidizers & Biocides  2,993
 pH Adjusters  1,486
 Scale Inhibitors  3,748

Water treatment chemicals are part of a larger category labeled specialty chemicals or performance chemicals.  The market for this broader category is $1 trillion per year. Large players include Dow Chemical, BASF, Bayer, INEOS Group and DuPont.

The major markets for specialty chemicals are:

  • Agrochemicals
  • Polymers & Plastic Additives
  • Construction Chemicals
  • Electronic Chemicals
  • Cleaning Chemicals
  • Surfactants
  • Lubricants & Oilfield Chemicals
  • Specialty Coatings
  • Paper & Textile Chemicals
  • Food Additives
  • Adhesives & Sealants

The major revenue producers in the water treatment chemicals market are formulators such as Ecolab (Nalco) and GE Water (Betz).  They in turn are buying the specialty chemicals which they then mix and sell along with service expertise.

A number of acquisitions have taken place in the industry in recent years. In the most recent announcement, Lanxess AG agreed to buy U.S. competitor Chemtura Corp. for about $2.1 billion in cash, more than doubling the size of its additives business and accelerating a shift towards specialty chemicals. Chemtura sales are €1.5 billion with a pretax EBITA of €245 million.  Chemtura sells bromine directly to some large customers but is also a supplier to formulators such as Ecolab. GE is planning to divest its water business.  This includes the Betz water treatment chemicals.  The sale of this group will have an impact on the market going forward.  The divestiture target date is mid-2017.

The forecasts do not include the pH adjusters used in scrubbers. There is a very large market for lime and sodium compounds sold to power plants and other industrial emitters.  Lime and limestone react with SO2 to form gypsum. Much of the world’s gypsum wallboard is made with flue gas desulfurization (FGD) gypsum.

For more information on N026 Water and Wastewater Treatment Chemicals: World Market, click on: http://home.mcilvainecompany.com/index.php/markets/27-water/449-n026-water-and-wastewater-treatment-chemicals

NEWS RELEASE                                                                                  DECEMBER 2016

Filtration Market Rankings Change with Two Acquisitions

Two significant mergers in the filtration industry have taken place in the last month.  Lydall has acquired Gutsche and Parker Hannifin has acquired Clarcor. Lydall’s acquisition is relatively small but their increase in market share is large.  Parker Hannifin’s acquisition is large but their increase in market share is relatively small.  One reason for this is that Lydall is nearer the beginning of the supply chain where total revenues are less.  The second reason is that Lydall has focused on a niche market, whereas the Parker acquisition is much broader based.

Lydall, Inc. has entered an agreement to acquire MGF Gutsche GmbH & Co. KG (“Gutsche”) for approximately $58 million in cash.    The business consists of operations in Germany and China. Gutsche’s fiscal year ends on December 31, 2016 and revenue and EBITDA for these operations are forecasted by Gutsche to be approximately $50 million and $6 million, respectively.

Lydall has recently acquired Texcel and they purchased Andrew several years ago. These previous acquisitions plus Gutsche are providing Lydall with a market share approaching 20 percent in high performance non-woven media for fabric filters.

Fabric Filter Bag and Media Revenues 2016   $ Millions
Bags 3,000
Media 1,680
High Performance Non-Woven Media  800
Lydall High Performance Non-Woven Media 90-120
Gutsche High Performance Non-Woven Media 45
Total High Performance Non-Woven Media 135-165
 Lydall % of High Performance Non-Woven Media 17-20%

Other competitors in the high performance non-woven area for fabric filters are BWF, Xiamen Savings and Testori. An increasing number of Asian suppliers have also entered the market.

Parker Hannifin will acquire Clarcor for $4.3 billion. Clarcor is a diversified manufacturer of mobile, industrial and environmental filtration products with annual sales of approximately $1.4 billion and 6000 employees worldwide. Clarcor brands include Clarcor, Baldwin, Fuel Manager, PECOFacet, Airguard, Altair, BHA, Clearcurrent, Clark Filter, Hastings, United Air Specialists, Keddeg and Purolator. The acquisition of Clarcor adds a broad range of industrial air and liquid filtration products and technologies to Parker Hannifin’s filtration portfolio. With approximately 80 percent of Clarcor’s revenue generated through aftermarket sales, the acquisition is expected to significantly increase recurring revenue in Parker Hannifin’s Filtration Group.

Filtration Revenues 2016 $ millions
Segment Total Filtration

Mobile, Hydraulic

Compressed Air

Industrial/

Environmental

Clarcor Revenue 2015 1400 590 810
Parker Filtration and Engineered Materials 2500 2300 200
Total Filtration 3900 2890 1010
Market Share 3% 6% 2%
Gas Turbine Inlet Air 100   100
Gas Turbine Market Share 18%   18%
Process Liquid Filtration 100   100
Market Share 2%   2%

The combined company has full portfolios in some segments of filtration and partial in others and is not a player in many segments.

Parker Clarcor Combination
Filter Type Portfolio Coverage Market Ranking
Fuel Filters - Mobile 100% High
Oil Filters - Mobile 75% High
Air Filters - Mobile 75% High
Hydraulic Filters - Industrial 100% High
Industrial HVAC 100% High
Compressed Air 100% High
Gas Turbine Inlet Air 100% High
Natural Gas Coalescer 100% Medium
Cartridge Filters for Process Liquids and Water 75% Low
Dust Collector Bags 100% High
Catalytic Treatment 10% Low
Scrubbing and Acid Gas Removal 0 Low
Cross Flow Membranes 0 Low
Sedimentation and Centrifugation 0 Low
Liquid Macrofiltration 0 Low

The new Parker will be a leader in dust collector bags.  They buy the roll goods from companies such as Lydall.  Clarcor has moved vertically to manufacture media for HVAC but is a small player in roll goods manufacturing.

Parker has expanded and is a major player in filter elements. It is not competing in system work except in some narrow areas such as gas turbine inlet filtration.  However, because of the fractured nature of the filtration industry, it is a market leader in an expanded number of segments thanks to this acquisition.

The market shares of suppliers are continually tracked in:

1ABC Fabric Filter

2ABC Scrubber/Adsorber/Biofilter Knowledge Systems

3ABC FGD and DeNOx Knowledge Systems

4ABC Electrostatic Precipitator Knowledge Systems

N007 Thermal Catalytic World Air Pollution Markets

N024 Cartridge Filters: World Market

N020 RO, UF, MF World Market

N006 Liquid Filtration and Media World Markets

N005 Sedimentation and Centrifugation World Markets

N022 Air Filtration and Purification World Market

N035 NOx Control World Market 

N064 Air/Gas/Water/Fluid Treatment and Control: World Market

Coalescer Supplier Program  http://home.mcilvainecompany.com/index.php/markets/28-energy/1124-n065

NEWS RELEASE                                                                            DECEMBER 2016 

Largest Revenue Generation in the World FGD Market Will Be in the Aftermarket

The market for flue gas desulfurization (FGD) systems, components and services will grow over the next eight years despite the environmental initiatives to reduce coal-fired power generation.  This is the latest forecast in N027 FGD Market and Strategies.  The Trump Administration will not be able to reverse the movement away from coal in the U.S.  The main reason will be the continued low cost of natural gas. However, Asia will continue to build coal-fired power plants.  As a result, by 2025 Asia will have a coal-fired power capacity three times larger than that of Europe and the U.S. at their peaks.

In 2008, the U.S. was winding up a big FGD retrofit program and China was in the middle of a combined FGD retrofit and new coal-fired power plant expansion. Thus, the market for new systems was over $10 billion.

World FGD Market $ Millions
Revenue Source 2008 2017 2025
New Systems 10,000 3,000 4,500
Outsourced Repairs, Replacement and O&M Support 6,000 12,000 20,000
In House O&M 10,000 18,000 18,000
Total 26,000 33,000 42,500

Due to the abrasive and corrosive slurries, high temperatures and sheer size of the FGD systems and components, the market for replacement parts, repair and service is substantial   Since most coal-fired power plants around the world cannot continue to operate when SO2 levels exceed requirements, there is a big investment in operation and maintenance. 

Smart valves, pumps and fans are increasingly combined with software programs to provide remote operation of plants.  As a result, a big market is developing for third parties to support the operations or even take over the operations of the systems.  The first such example was in the 1990s when an Indiana power plant contracted with Mitsubishi and Air Products & Chemicals for a BOO system.

The opportunity to offer BOO systems and generate revenues from byproduct sales will be expanding.  In the past, suppliers have offered to supply BOO systems and to generate revenues from the supply of ammonium sulfate.  Byproduct gypsum is only a fraction of the value of ammonium sulfate.  The biggest opportunity is the potential extraction of rare earths.  A two-stage scrubbing system is likely to provide the lowest cost process to extract rare earths from flyash and at the same time generate hydrochloric and sulfuric acid.

For more information on N027 FGD Market and Strategies, click on:  http://home.mcilvainecompany.com/index.php/markets/2-uncategorised/107-n027

NEWS RELEASE                                                                                        DECEMBER 2016

Connecting Things, People, Intelligence, Niche Experts and Wise Crowds for Power Industry Decisions

GE, Emerson, Siemens and many other companies are creating software to connect things.  There is a large potential for this in power generation.  This potential was reflected in a number of papers and displays at the recent PowerGen Asia exhibition.

“We believe the success of our power generation customers will be more and more supported by the intelligent use of data generated by ever increasing connectivity of devices. The integration of those data with people expertise and knowledge will create additional services in a cycle delivering unprecedented knowledge of the behavior and potential of their assets,” said Marco Sanguineti, Head of Technology for ABB’s Power Generation business unit.

McIlvaine recently conducted nine hours of webinars focused on a problem for one utility.  Presentations by Siemens, GE and Emerson addressed the optimization route to a lowest total cost of ownership (TCO) solution but the participants (wise crowd) concluded that incorporating innovative new technologies and components would be equally important in a system which would provide the lowest TCO.

Companies such as ABB are integrating the data from many thousands of sensors which are monitoring thousands of pumps, valves, mixers, fans, compressors, burners, conveyors, filters, etc.  In a large utility with multiple plants, there are hundreds of individuals with specialized knowledge that may be valuable in a specific lowest TCO determination. As a result, there are likely to be many thousands of people who can contribute to the decision-making process. How do you take advantage of all this niche expertise?

Jeff Immelt of GE observed that the power industry needs to adopt the “hurry up” attitude of Silicon Valley in developing new technology.  McIlvaine believes that this “hurry up” mode can best be achieved by decision systems which interconnect machines with people, intelligent databases and systems, niche experts and wise crowds.  Systems have been created which provide the four knowledge needs:  Alerts, Answers, Analysis and Advancement. The newest addition has been to supplement periodic webinars with very focused LinkedIn discussion groups.  These groups facilitate “wise crowd” decisions by addressing all the criteria needed for a “wise crowd” to function properly.

Wise Crowd Criteria and LinkedIn Role

Criteria Description LinkedIn role  
Diversity of Opinion Each person should have private information. Small LinkedIn discussion groups lend themselves to extracting the niche expertise and unique ideas.  
Independence People's opinions aren't determined by the opinions of those around them. The small LinkedIn discussion groups are not subject to the peer pressure of the large webinars.  McIlvaine editors then integrate the conclusions reached in the discussion groups.  
Decentralization People can specialize and draw on local knowledge. The small LinkedIn discussion group is the ideal way to extract the local knowledge and benefit from niche expert participation.  
Aggregation Some mechanism exists for turning private judgments into a collective decision. The LinkedIn discussion groups are a bridge between analyses and webinars which result in the collective decisions.  

The LinkedIn discussion groups are an important part of the entire interconnection system between:

  • Separate individuals and divisions within a supplier conglomerate
  • Separate individuals and divisions within a utility conglomerate
  • Separate individuals and divisions within a consulting company
  • The final interconnection between all the many individuals in each of the above

Supplier knowledge can be transmitted through individuals who are encouraged by management to focus on becoming more expert.  These individuals will be “rainmakers.”  If they demonstrate that their company has the knowledge and the products to provide the lowest TCO, they can be very effective in boosting sales.

The same is true of consulting companies. However, the challenge will be to offer just enough expertise to achieve the rainmaking without reducing the potential actual consulting revenues.

The LinkedIn discussion groups are incorporated in three Decision Guides:

4S01 Berkshire Hathaway Energy Supplier and Utility Connect

44I   Coal fired Power Plant Decisions (formerly PPAQD)

59D Gas Turbine and Reciprocating Engine Decisions

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