Mueller Water Products’ largest acquisition since being spun out of Walter Industries in 2006 opens the door to additional pipe repair opportunities that could help offset construction headwinds.
Mueller Water Products is looking to leverage its $140 million acquisition of Krausz Industries as a growth platform in the North American water net- work repair market, serving to offset tepid investment in new infrastructure and head- winds in residential construction.
Although the US witnessed robust municipal spending on water infrastructure last year, expenditure is being directed increasingly towards the maintenance and repair of existing assets, and less so to the installation of new distribution infrastructure such as the pipes, hydrants and valves that lie at the core of Mueller’s business.
CEO Scott Hall explained to GWI this month that the Krausz acquisition will allow Mueller to better tap opportunities in the distribution network repair market, which accelerates during times of reduced investment in new infrastructure.
“Without some sort of systemic rein- vestment in the depreciated base, more and more of the water supply network is going to fail on an emergency basis,” Hall told GWI. “We’ve seen the repair market growing at a much faster rate than standard infrastructure products, where investment growth has been in the 2-3% range for the past five or six years,” he added.
Hall believes Krausz’s differentiated value lies in its portfolio of patented grips and couplers, which reduce the time required to repair pipes, and cut down what he refers to as “time in the ditch”, allowing utilities to more effectively utilise their labour resources.
“We already have a big toe in that market with our repair clamps, and with our feet on the ground being eight to ten times the size of their sales force, we feel that we will be able to penetrate quickly into mid- sized and large utilities with the Krausz products,” Hall explained.
Although approximately 75% of Krausz’ $43 million revenues in 2017 were derived from North America, the Israeli firm has a manufacturing facility in Tel Aviv, and is active in Western Europe.
While Hall affirmed his commitment to maintaining the Israeli footprint, he played down Mueller’s international growth prospects – at least in the near term. All of Mueller’s current manufacturing facilities are located in the US, Canada, and Mexico, and while the firm has sales offices in the UK and the Netherlands, less than 10% of its revenues are derived from outside North America.
“We’re committed to a model where you manufacture in the country that you’re trying to ship to. Putting cast iron pipe and couplers on a boat is highly inefficient,” Hall explained. “We have to have enough critical mass in these countries to justify the investment in a foundry or a machine shop, but there are attractive dynamics in these international markets that we would very much like to partake in.”
The company is also pinning additional growth prospects on its technologies business, which accounted for $97.2 million of Mueller’s $916 million total revenues in the year to 30 September 2018, and includes leak detection unit Echologics. The business has repeatedly sustained significant losses ($24.4 million in fiscal 2018) as Mueller continues to invest heavily in internal R&D. Hall believes that this perseverance will ultimately pay off as the firm looks to expand the pressure monitoring and leak detection capabilities it has built around its recently launched smart water hydrants to include other features such as water quality monitoring.
While some analysts have expressed concern at the lack of inorganic growth activity to bulk up the technologies business, Hall conceded to GWI that he is open to acquisitions to accelerate the company’s digital development, but cautioned that Mueller will remain disciplined in what it looks to pay for such assets.
“We’ve seen some pretty crazy valuations in the technology space, but as a responsible player in the market, we’re not just going to pay any multiple that some- body dreams up,” Hall stated. “You would have to believe in some fairly healthy adoption rates in what has been a traditionally slow-moving industry – as well as low interest rates for a very long time – to justify those sorts of valuations.”
Mueller Water came out of a protracted quiet period on the M&A front when it picked up Singer Valve in 2017. Despite the Krausz deal following relatively quickly, Hall maintains that the company is unlikely to accelerate its M&A activity.
“We are at a point where we have a fulsome pipeline of M&A candidates – there are many things we would like to pursue and will pursue – but you won’t see us pursue anything until I feel that the Krausz team is integrated into Mueller processes,” Hall maintained. “In the near term I would be loathe to add any more complexity.
Written By Paul Hassler, Reporter with Global Water Intelligence
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