Case Study: Aquam Water Services
Within our direct investments, we look for resilient companies whose growth is underpinned by long-term trends.
In this case, AWS benefits from both a trend towards utilities outsourcing non-core activities and ongoing regulatory pressure to detect and prevent leakage.
Our aim is to grow the business by (i) continuing to drive the conversion from illegal to legal water usage, (ii) partnering with new water utilities, (iii) upgrading and expanding the product offering, and (iv) entering new customer segments and geographies.
- AWS is the second investment of Unigestion Direct II.
In June 2020, Unigestion Direct II, together with our investment partner Cadence Equity Partners, invested in Aquam Water Services, the UK’s leading provider of outsourced standpipe management services to water utilities, and Orbis, a developer of intelligent modules that attach to standpipes and other adjacent equipment.
This case study provides an insight into our direct private equity investment strategy and approach. It illustrates the typical characteristics of companies in which we invest and how we look to create value.
About Aquam Water Services and Orbis
Aquam Water Services (AWS) is based in Manchester and is the UK’s number one provider of outsourced standpipe management services to water utilities. The company enables end water users (e.g. local authorities who need water from street level access points for road cleaning, etc.) to rent standpipes and legally extract water from utility networks. AWS’s key operations include:
- Managing the rental process for end-users of standpipes
- Providing various services to water utilities, including end-user billing and reporting / detecting illegal standpipe use
In addition to AWS, the transaction included Orbis, which has been the “outsourced R&D arm” of AWS. Based in San Diego, Orbis manufactures GPS-backed intelligent modules that can provide customers with valuable data on water usage, location, leakage detection, etc. These modules can be attached to AWS’ standpipes, creating intelligent standpipes that are rented at higher price points. There is also scope for Orbis’ intelligent modules to be applied to various other adjacent items, including hydrants and pipes, thereby substantially expanding the customer base and addressable market of the combined group. Following the transaction, Orbis will be merged into AWS.
Both AWS and Orbis were previously owned by US-based Aquam Corporation, a leading provider of pipe diagnostics, repair and rehabilitation solutions.
Why did Unigestion choose to invest in AWS?
Unigestion targets investments in resilient companies with superior value propositions, strong management teams and attractive financial metrics. Importantly, Unigestion seeks companies which are underpinned by investment themes that are supported by long-term trends.
This transaction presented an opportunity to acquire a stable and highly cash generative core business (AWS’ standpipe rental offering) and combine this with Orbis’ intelligent modules, creating the potential for rapid growth with both UK water utilities and other customer groups. In particular, AWS benefits from both a trend towards utilities outsourcing non-core activities and ongoing regulatory pressure to detect and prevent leakage.
Sales from the core AWS offering are expected to grow robustly as the company helps customers convert illegal standpipe use to legal use. In addition, the company is in a strong position to win further contracts from the few remaining water utilities that are not already AWS customers. Moreover, AWS is exposed to stable end markets which means performance in this area is highly resilient. Indeed, volumes of hired standpipes managed by the company continued to grow even through the worst of the UK’s COVID-19 lockdown.
Furthermore, the roll-out of Orbis’ intelligent modules enhances the stickiness of AWS’ core standpipe offering by providing water utilities with valuable data. These intelligent modules can also be attached to other products, such as hydrants and valves. Consequently, the combined group has the opportunity to address a broader range of clients (beyond UK utilities) and grow in new geographies.
Did the COVID-19 crisis impact the fundamentals of this transaction?
By the onset of the UK’s COVID-19 lockdown in late March 2020, we had already conducted substantial due diligence on AWS and Orbis, and developed the thesis outlined above. However, the uncertainty created by the lockdown, and the potential longer-term implications of COVID-19, lowered our risk appetite. We consequently worked alongside our investment partner, Cadence, to renegotiate transaction terms with the vendor and secure a substantially reduced day one purchase price for both companies.
Moreover, our diligence period was extended as a result of COVID-19 and we were able to monitor the group closely through the lockdown. Throughout, we were impressed by the resilience of the core standpipe rental business, where volumes of hired standpipes grew despite the lockdown. Further, Orbis made good progress in securing new international clients for its intelligent modules in this period.
How do you plan to create value in this investment?
Part of our value creation plan will capitalise on AWS’ dominant position in its core UK standpipe rental market, where it is the sole provider of outsourced services to water utilities. Here the business enjoys sticky revenues and should continue to grow robustly.
In addition, the combination of AWS and Orbis will: i) unlock opportunities with existing AWS customers through the offering of data-led services, ii) drive AWS’ international expansion, and iii) create new opportunities for Orbis in adjacent markets based on AWS’ customer references and track record. The newly combined group aims to meet the increasing data needs of commercial, industrial and municipal water users in key markets in order to minimise leakage, improve operational efficiencies, maximise return on investment and meet regulatory requirements. Analysts are forecasting a significant growth in demand for “Digital Water Services” for the foreseeable future as private and public sector users look to protect and optimise an increasingly scarce resource.
We are excited to be partnering with both the AWS management and Cadence. The company is well-placed to capitalise on its leading position in this resilient market. This is a prime example of the type of small and mid-market company which we like – a solid platform serving defensive end-markets with a multi-pronged value creation plan.
Orbis has already won several new contracts and developed a strong sales pipeline that includes businesses beyond utilities (municipal, commercial and industrial).
As part of the terms of this deal, Unigestion will have a board seat and thus have key inputs into the company’s strategy and decisions.
How did Unigestion and Cadence become co-lead partners?
Cadence, an independent sponsor, was seeking an institutional investor with whom they could work closely during a rapid due diligence and negotiation process. Unigestion was able to deliver such a working relationship and we consequently developed a close, co-lead partnership through the transaction process. Moreover, this close collaboration resulted in us gaining extensive protection rights and a board seat, meaning that all key decisions will be made jointly by both Cadence and Unigestion.
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Document issued July 2020.