NEWS RELEASE                                                                                                      MAY 2012

Large Players in Air and Water Need to Follow Inorganic Growth with Organic

Many of the larger companies in the air and water equipment and service industries have grown substantially due to inorganic growth. Acquisitions boost revenues and total profits. The challenge is now to increase earnings as a percent of sales. This can be best done with prioritized organic growth. Details on a program to achieve this growth are detailed by McIlvaine Company in its comprehensive Air/Gas/Water/Fluid Treatment and Control: World Markets.

There are two categories of organic growth:

  • Low investment, low risk, attractive ROI
  • High investment, high risk, large ROI

Low investment, low risk, attractive ROI

This category should be the first priority because of the low investment and risk. There are two ways to accomplish this type of organic growth without creating new products.

  • Expand the existing product line into new applications and industries
  • Achieve greater geographical penetration with the existing product line

New applications and industries: The wave of mergers has set up very attractive opportunities for large players to expand product lines into new industries. Xylem has a great penetration with its pumps in municipal wastewater treatment plants around the world. The recent acquisition of YSI will allow it to pursue the municipal market for monitoring and instrumentation. Pentair and Tyco have complimentary industry strengths and product lines, so the merged company can leverage this synergy.

Colfax and Howden can combine the complimentary liquid and gas handling equipment with unique industry strengths. “This is a transformational acquisition for Colfax that accelerates our growth strategy, enhances our business profile and continues our journey to becoming a premier global enterprise," said Mitch Rales, Colfax Chairman.

GE has acquired Dresser and can leverage many of the synergies between turbines and valves in power and oil and gas industries. “GE and Dresser are a natural fit together. We share a commitment to technology and innovation and we have many common customers in the energy space,” said John Krenicki, vice chairman of GE and president and CEO of GE Energy in February 2011 when the deal was completed.

The achievement of these synergies has proven difficult for acquirers in the past. One of the reasons is the natural resistance among divisions to share knowledge and therefore power. Business experts say that the secret is creating a collaborative environment. They further recommend that a third party be utilized to help engender this collaborative atmosphere.

Expanding geographic reach: Most large international companies are not achieving the same high market share in Asia which they enjoy in other areas. Here are some examples:


Asia/Pacific % Total Revenue







Emerson Process




Product-World Market








Air Pollution Control Equipment



Asia is the largest current market and the fastest growing for almost all segments in air and water. The typical international player could substantially increase revenues by increasing the Asian market share.

Large international players face two big challenges:

  • Language nuances
  • Validating lowest life cycle cost claims

Most companies have no trouble reading or communicating in English. However, the specific terms which distinguish one product from the others are often not translated correctly. McIlvaine has developed a “Decisive Classification System” in English and Chinese to overcome this problem.

A second challenge is to convince the purchasers of the lower life cycle cost of the international product as opposed to the local one with the lower initial cost. Thanks to all the available digital communications this challenge can be effectively addressed.

High investment, high risk, large ROI

The biggest potential increases in profits come from developing proprietary products and services with lower life cycle costs. This can be accomplished with both product and application research. Companies should be pursuing more fundamental research to develop products without a pre-determined market in mind. At the same time, they should be tailoring existing products to developing markets. Furthermore, the big players can be pro-active and help create new markets.

Too little is spent for R&D by the companies serving the air and water markets.


2012 Expenditure

$ Billions

% of Total

Research Intensity R&D/Revenues %


























Industrial equipment providers including those in the air and water segments are spending very little on basic research and not much more on applied research. The machinery manufacturers as a group account for just over 4 percent of research and development (R&D) in the U.S. By contrast, the pharmaceutical, computer/electronics and information groups account for 50 percent of all research. The pharmaceutical industry spends 13 percent of revenues on R&D. The true R&D for the air and water industry is less than 2 percent. Furthermore, air and water R&D tends to be government funded even though companies such as ADA-ES are actually doing the work and are being remunerated to do so.

The large players in air and water can justify increased R&D based on the expanded inorganic revenue base. There are numerous examples of developments which have created very large and profitable revenues streams, e.g. Goretex (organic) or Filtrete (inorganic).

There is a larger and bigger profit potential in developing whole systems. McIlvaine has identified the co-location of power plants and municipal wastewater treatment plants as one initiative which would create high potential for profitability.

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