[00:00:00] Speaker A: To put it simply, if Bentley were to become a part of Schneider's portfolio, specifically its one software strategy, Schneider would really be able to achieve that end to end solution. And it could effectively become a one stop shop of sorts for both asset as well as network management solutions.
[00:00:23] Speaker B: I am Reese Tisdall and this is future Water, which we talk about all the ways which companies, utilities and people are addressing the challenges and opportunities in water. This is episode 94, and I know it's going to be a good one. That's because we're going big this time. It's been a while. I'm joined by two Bluefield colleagues. I'm going to be joined by senior research director Eric Bentler and analyst Christine Au. I wanted to talk to them because there's another big m and a deal in the water that could be coming down the pipe. On April 22, Schneider Electric, the french based technology, electrical automation and energy management company, announced that it was in preliminary discussions to acquire a controlling stake in Bentley systems. Bentley, Pennsylvania US based construction, design and project management technology company. Potential deal actually follows Bentley's 2020 ipo. So it wasn't that long ago that they went public and at the time they were valued at about 15 and a half to $16 billion. So pretty significant. This could be a pretty big deal for the water sector. And the acquisition or even a strategic alliance would grant the french company greater access to Bentley's customer base, including infrastructure owners in the US, but also government clients globally. So I'm hoping Eric and Christine can share their perspectives on what this might mean for the water sector, competitive landscape and really leading companies in the water space. But before we do that, I thought I'd share some news that caught my attention this past week. Something that got me really interested and kind of excited in some respects. I was reading the Wall Street Journal this past week and came across an article, America's biggest oil field. The ground is swelling and buckling. Truth be told, I like oil. It's interesting. It's super complex, it's volatile, it's geopolitical, and it's just really interesting from a business perspective. Even better. Over the last decade to decade and a half, water has played an increasing role, particularly for hydraulic fracturing in the US. So put it in perspective. After founding Bluefield in 2013, one of the early research projects, we did put out a report on it, which I really liked. It was on water management for hydraulic fracturing. Fracking is another way to put it was really ramping up. And we had actually had a couple technology companies asking us about the potential for reusing water, produce water, and the need really for advanced water wastewater treatment technology in the sector because of just the volume. So at the time, annual water management spend for fracking was about seven to $10 billion. But of that, 70% was really for trucks that is just moving water to the wellhead from wherever the supply came from, groundwater mostly, and then to disposal sites. And so there are thousands and thousands of disposal saltwater disposal wells in Texas. And so they were trying to figure that out. But it's not just Texas, right from western Pennsylvania's Marcellus shale to the permian basin, which is really what this article was about. The sector never really ceases to amaze me for this reason. The Wall Street Journal article caught my eye, but by the title, one wouldn't know that it was even about water. But in fact it is. It's really about the growth and the role of midstream water, as we want to call it. Companies like select energy services that really have carved out a strong position in water management in the sector. But some details. Oil production in the Delaware portion of the permian basin, it's reached about 3 million barrels per day. Oil production in the US is really strong right now. So a lot of that has to do with fracking. This is why we are energy independent and such a global player in the market now. But for every barrel of crude that comes out, thats 42 gallons per barrel, five to six barrels of water or produced water come out on average. So you put water in the hole and then five to six times that come out of the well after the fact. And it needs to be managed. So dispose of the this produced water. Oil companies are injecting billions of barrels into underground disposal wells. And that's caused not only land to subside by as much as eleven inches from withdrawing, but also it's causing land to rise. So we're seeing ups and downs of anywhere from five to eleven inches, according to the article, of rising and buckling, which is causing concerns for local communities. But the constant extraction is also raising other concerns, which has actually been in discussion for well more than a decade. And that is earthquakes. Earthquakes linked to the disposal of water. You just think about all the volume that's going into these disposal wells. Well, in 2017, there were about 42 earthquakes in the permian basin and 2022 there were 671 recorded. So this has been an ongoing concern about what this might mean because sending all this water, not only because of the weight it's crossing some movement, tectonic movement, if you will subsurface. So really interesting. So why do we care at Bluefield? Well, like I said, it's a water problem. The permian basin illustrates really the complex environmental, economic and social trade offs involved in large scale oil production. While the oil boom is made at the world's largest producer and fueled really regional or us economic growth. There are some costs, right, whether it be earthquakes, but also just water management. Water disposal issues are impacting oil companies bottom line. So driving up costs for new wells. Companies are having to make significant adjustments and figure out how to manage it all. So we're shrinking options to dispose of the water just because of the volumes. Companies are now looking for alternative solutions, ways to reuse or reclaim the, the wastewater. So really interesting article, but also lots of interesting discussions internally. Bluefield. So I wanted to share this with you guys. So there you have it. Really, really like the energy sector. So if anybody has any questions or comments about that, let us know. Also related to that, I want to throw out there, we did just put out a energy related report that would be water management for the hydrogen economy, not just in the US, but globally. There's a lot of activity, a lot of, whether it be us federal money, but also just even yesterday or the day before, I think the EU announced $750 million going to at least as part of our first tranche of investments into some hydrogen plants in southern Europe, but also Germany as well as northern Europe. So globally, from Australia to Europe to the US, the hydrogen economy is picking up in many respects. The question is, will it happen? But the other point we want to bring up is, what's the water demand going to be if it plays out? It's going to require as much water over the decade to serve 20 million people with just daily household use. So that's the city of New York. Lots of water will be demanded by the hydrogen sector. Question is, what are the supplies and where it's going to come from?
I drag on. Let's get to Eric and Christine and let's talk a little bit about M and a and the water sector and see what that means.
All right, so I'm joined by Eric Bindler and Christine Au. It's been a while since I had two people on the podcast, so it feels like old times. Eric, how are things? Pretty good.
[00:08:04] Speaker C: I am coming to you from a hotspot because for some reason my wife flies out, even though it's bright and sunny outside. So appreciate apologies if I disappear in the middle of this, but we'll try to, try to get through it.
[00:08:13] Speaker B: All right, Christine, you can pick up the pieces. In the meantime, how are things with you until it runs off the rails, it's been good.
[00:08:22] Speaker A: The weather in Boston has been nice, so it's really nice to have spring be finally upon us. I'm looking forward to spending time with my friends this weekend and really soaking in all of that sunshine.
[00:08:33] Speaker B: Someone from Singapore to say that this is spring and nice is pretty tough, pretty brisk out there, but in any case, let's jump into it. So I wanted to bring you guys on because I think it was Friday, or a little more than that. There was some news that came across the transom. SchnEiDER Electric, I think it was like in a Friday Wall Street Journal, which is where I saw it, Schneider Electric had made an announcement that it was in talks to acquire or acquire a stake in Bentley. So in dollar terms, it seems like this could be a really big deal if it actually goes through. So why don't we start with you, Christine. Give us a little bit of background about the companies and what this is all about.
[00:09:18] Speaker A: Yeah, for sure. So on the 19 April, Schneider put out a public statement confirming media reports that Schneider and Bentley were in talks for a potential acquisition. Bentley put out a statement soon after similarly confirming these reports. The statements were pretty short and they didn't give a ton of detail, understandably. But what we know is that talks are in the very early stages. Currently, Bentley is estimated to have a market value of around $16 billion. So definitely in dollar terms, it would be a huge deal, and it will have a vast ripple effect across the various industries that both companies play in a Bentley sale, though I think it's important to know, is not really out of the question. Back in 2020, Bentley was actually in talks with Siemens for a potential takeover by the german engineering conglomerate. Eventually, Bentley opted to IPO in September of that year, and at the time, Siemens had a significant, or had acquired a significant minority stake in the company at about 14% from the last. We know this stake has since gone down to about 5% equity as of 2022. The last couple of things I wanted to throw in is that this is definitely not just about water. Bentley and Schneider focus on a lot of other segments as well. So. But nonetheless, Bentley and Schneider, they're both major digital water players. And while the proportion of their water business is small relative to their other businesses, this is still going to be a big deal for the water industry if a deal like this was to go through. Also, I do want to note that Schneider is not the only player that is in the running to potentially take over Bentley. Siemens could very well put in a bid similar to what they did in 2020. And the media also reports that Massachusetts based design software company Cadence design system has also expressed interest in a potential deal.
[00:11:12] Speaker B: Yeah, I think it'll be interesting to see if these others, particularly for cadence, it might be a big bite to take on, but that's really interesting. I mean, the more we look into this, the more information we're getting out of this, so I can appreciate that. And so before we get to the ins and outs of the deal and what are the implications, can you give us a little bit of background on the companies themselves and kind, kind of. Why don't we just start with Bentley and go from there? Christine, what do you say? Yeah.
[00:11:40] Speaker A: So, Bentley, they're a us engineering design software company. It was founded in 1984 by the Bentley brothers, from which the company actually gets its name. And Bentley primarily provides design and operations software for a vast array of infrastructure sectors. Bentley has a suite of solutions for infrastructure planning, design and operations, specifically when it related to the water industry, it is targeted at, like, water networks as well as treatment plants. In 2023, the company reported about $1.2 billion in total revenue. So they've been doing well financially. However, earlier this year, in March, CEO Greg Bentley announced that he would be stepping down in July, which marks an interesting turning point for the company because he is the last of the Bentley brothers to hold an active management role in the company. All the Bentleys are going to stay on the board of directors, so they will have still some level presence as well as within the company. But at least on the active management side, this is an end of an era for Bentley. So it's very interesting to see where they're going to go from here, whether it's to go with Schneider or any other shifts in strategic direction.
[00:12:48] Speaker B: And, Eric, I mean, you've looked at Bentley a fair amount over the years. We've worked with them in a number of different ways. Do you have any perspective on Bentley itself?
[00:12:59] Speaker C: Yeah, I mean, they've been a really interesting player to watch. They're kind of a core software player, really starting, and as Christina, Christine mentioned, really focused in the engineering and design space, a lot of hydraulic modeling software moving into plant design and Bim and things like that. So that engineering space and that software space are really kind of their core focus. But over the past couple of years, I mean, really, since I've been kind of looking at them and working in this space, they've done a few things that I think have been really interesting and a bit unique. So one of them is that they've really, over the past, I don't know, maybe four to five years, really kind of gone all in on this digital twin concept. Right. And we can talk more. We have talked about that on this podcast and in other of the research, but basically trying to move from that engineering design space into operations.
[00:13:45] Speaker B: Right.
[00:13:45] Speaker C: If you think about kind of the lifecycle of an infrastructure asset, a pipe network or a treatment plant, the engineering and design and construction phase is a couple of years, whereas this asset is meant to last for maybe 30, 40, 50, 8100 years in the case of some pipe networks. Right. So getting into that space where they're providing tools to the actual operators who are going to be managing and maintaining these assets is obviously a good strategic move for a company like that that's really focused in the upfront front end engineering space. And so that's really where the digital twin piece comes in, feeding in real time data to take these models, these designs, and make them dynamic and responsive to real time changes in operating conditions. They've also gone, while they are obviously mainly a software player, they've been investing a lot in the services space, standing up or acquiring or investing in basically specialty digital twin and software integrators in the water industry. They kind of invested in this company, Digital Waterworks, that was Paul Bulos company. Theyve bought up a bunch of asset management software integrators, and basically with the idea that, hey, we need more infrastructure owners and operators and designers using our software. So why dont we create these specialty service providers that can go out and actually get these things configured and up and running and get people using the software? So that's been an interesting kind of strategy that is a bit unique to Bentley compared to some of the other more pure play software players that we look at. And they've also been really going in the direction of infrastructure IoT. They bought a couple companies called Vista Data Vision and sensemetrics that are really trying to not necessarily offer IoT hardware, but take a lot of that IoT data that's coming in from different devices and, and feed that into their software platforms. And so from that perspective, yeah, they've got a really strong foundation in the water industry in terms of, like I said, hydraulic modeling design, BIm and plant design, stuff like that. But they're really moving in a couple of really interesting directions over the past few years that I think make them stand out compared to some of their peers.
[00:15:54] Speaker B: All right, so, yeah, so, like, I said, lots to unpack. So now let's flip the coin and look at the other side. Christine, what do you think about Schneider Electric? What's the background of them for the listeners? So they know where Schneider is coming from and what their interest might be in developing?
[00:16:13] Speaker A: Yeah, for sure. So Schneider Electric is a highly diversified french industrial hardware and software provider. They've been around since 1836, so they have a very long history, and they've been very successful in various industries that they plague in. In 2023, Schneider reported around $38.6 billion in revenue, and within that, about 8.2 billion in is in their industrial automation segment, which is where their water business mainly sits. When it comes to water, Schneider is particularly well known as a Scada and HMI provider, as well as other kind of asset management operations, hardware components such as controllers and drives. Over the years, Schneider has been active on the software front as well. So Ecostruxure, for example, is Schneider's hallmark operations management software platform that is applicable to various industries like buildings, power, and, of course, for all intents and purposes, for this podcast, water. They recently also entered a partnership, I think, sometime mid last year with Suez to bring in and integrate Suez's Aqua advanced solutions into ecostruxure. And this really allows your end users and operators to access real time water monitoring as well as operations capabilities that comes with the Aqua advanced suite of solutions as a part of its software growth strategies. Schneider has not only done these strategic partnerships, but also been active in acquiring companies very similar to what Bentley has done, as kind of Eric has touched on. So one of the most notable ones is definitely the Aviva group, which extended the company's capabilities into engineering, design, construction, and through subsequent acquisitions, also into the operations as well as data management space.
[00:17:56] Speaker B: Yeah, I mean, you mentioned Aviva, so maybe, Eric, I can turn this to you. I mean, they've made other deals. I mean, they've been pretty seemingly active. Can you shed some light on, like, is this on par with what Schneider has done in terms of M and A, et cetera?
[00:18:12] Speaker C: Yeah, I mean, they're, you know, as Christine mentioned, right, 38.6 billion. They're big player, big, diversified kind of industrial player. They've made many, many deals over the years, even, you know, just within what we kind of relatively narrowly define as digital water.
[00:18:28] Speaker B: Right.
[00:18:28] Speaker C: Like, you know, companies that have some sort of applicability to the water sector. We have about eleven deals in our digital water m and a database going back ten or so years. Aviva actually bought Osisoft for $5 billion in 2020. And that was another major kind of expansion of their footprint in water. Osisoft being a big data management, data integration, data analytics, and visualization platform that serves water. But again, a lot of other industries, all of that is to say, with this highly acquisitive approach to the market, they've had a lot of integration challenges in the past. They're buying all these different pieces and trying to figure out how to put them all together into coherent offerings for different segments of the market. What's interesting, though, is we've had a couple of conversations with them. They've presented some of their latest offerings and capabilities and their pitch decks to us basically over the past, you know, a year or two. And it's really all about integration. I think they've got to really across, you know, their acquisitions, their, um, their partners, you know, Suez, for example. They've got a lot of pieces of what we, what we would consider to be the digital water stack, right? A lot of different technologies and segments they, they cover in some way. And really, the story now is all about trying to integrate that all together into something that's going to be usable and kind of coherent for their clients. And so kind of like what I mentioned with Bentley as far as the digital twin piece, right, that, you know, integration of data across the asset cycle from design to construction to operation. That's a big part of the story that Schneider is telling the market, telling the water market specifically, different types of engineering as well, right? I mean, as kind of an automation and SCadA company, they've got a lot of capabilities in terms of kind of process engineering, automation engineering, but also they're really big in the electrical space, right? I mean, they're Schneider Electric. A lot of what they do is tools for kind of managing, uh, electrical power systems. And so trying to really bring that conversation into water management. You know, how does the electrical engineering and electrical design of a treatment plant impact operations and efficiency and sustainability and that kind of thing? And then they're really pushing for, again, just kind of common data models, common asset models that are applicable across all these different technology systems, all these different silos. I mean, we talk about that a lot in the digital water space. That's where I think the Osisoft piece really came in and really being able to tie together all of these disparate pieces of information about a treatment plant or about a pipe network or about a pump station, making it so that all that information from the engineering phase to the construction phase to the design or to the operations phase, it's all kind of living in one place where utility operators can access it and make better decisions, make more holistic decisions from kind of one platform or one solution. That's a really big part of, again, how well they're executing on it or what that really looks like is one thing, but that's kind of the story that they've been telling us and kind of telling the market about what they're trying to do.
[00:21:30] Speaker B: Yeah, I mean, it's kind of interesting. They are, I mean, seemingly a big fish in the water sector, both, like you said, through acquisitions, but also just their roles, sort of what I would say behind the scenes. They're not a pure play. They're extremely diversified, but they do have a significant footprint, particularly when you stack them up against their, what I would call sort of leading digital water peer group. There are a number of different companies in that space. So why are they interested in Bentley and what does this mean for them as well as their position?
[00:22:05] Speaker C: Yeah, so I was kind of poking around a little bit more in preparation for this conversation, and I think we're going to be putting out a research note on this as well. But there's a couple of things, actually, that they have in common that I wasn't really thinking about or expecting when I saw the initial news about this potential deal or the talks about this deal. The first thing is that Schneider and Bentley are both very strong Microsoft partners. As we're thinking about the move to the cloud and the solutions that they're both spinning up in that space. They're both built on Azure. There's a lot of potential. I think it would make the technology integration easier if they were to do a deal. That's certainly something that I think makes a big difference these days in terms of technology acquisitions and integration.
They also both have an interesting philosophical take on this move towards open source software. It's not something we've talked a ton about, I think, on the podcast. It comes up a little bit in our research.
Bentley's core digital twin platform is an open source platform, which is a bit of a rarity in the digital water space. And then Schneider, for their part, they've really been kind of one of the champions of this idea of open automation.
[00:23:18] Speaker B: Right.
[00:23:18] Speaker C: The way that kind of Scada and automation systems work right now is that each company, each Scada and HMI provider has their own kind of proprietary programming language for their plC's and the systems integrator that comes in and designs the automation for a particular facility.
They're locked in. It's really difficult for a utility to bring in a new integrator or switch to a new technology, new vendor because so much of that ecosystem is very proprietary and very specific and locked into the integrators and the technology vendors. And so Schneider has been one of the players that's pushing for this new model of open automation.
Not to say that open source and open automation are the same thing, but they do share this philosophy of potentially where the technology spaces going in the future. And I think that opens up some interesting discussions about what it would look like if they partner together, both interested in the digital twin space. I kind of brought that up already for Bentley, but I think, I mean, I guess maybe just the last point that ill make here to kind of bring it back to what I was saying earlier about where Schneider seems to be going as theyre trying to, as theyre trying to move to a more kind of integrated and coherent platform. In the conversations that weve been having with them, I mean, prior to hearing this news about Bentley several times, they've mentioned that the importance of being able to connect the engineering and design phase to the automation phase, there's a lot of efficiencies that you can gain if you're able to share data from the design and engineering software with the automation that you can pull in. If you're doing a digital design of a treatment facility and then being able to pull those assets into your automation platform. Um, you know, there's, it may be a little bit more of a kind of a costly process upfront, but the, the savings down the line in terms of just being able to operate your facilities more efficiently, manage your kind of automation platform more efficiently, they're just there, there's a lot of reasons why, from a technology perspective, that's, that's a big benefit for, um, for, for clients, right, for end users. And so when we look at what Schneider already does today and where they're positioned right, they do have Aviva right. When they bought Aviva back in, I think, 2017, Aviva, kind of their core was in this engineering and design software space, but not so much in the infrastructure sector.
[00:25:40] Speaker B: Right.
[00:25:40] Speaker C: They've got a lot of tools for, like, for industry, for kind of manufacturing facilities and things like that, but not as big of a position in, you know, kind of the critical infrastructure space and the water space specifically. And so I think that's really where this gets interesting, is that if Schneider is able to pull in all of those really robust engineering design capabilities for water networks and water treatment plants that Bentley has, it gives them that line into, you know, how do we take that into information? How do we structure it so that we're seamlessly moving from that engineering and design and construction phase into the eventual automation and operations of the facility, all of the technical and operating efficiencies and benefits that would come from that.
[00:26:18] Speaker B: Trey, I mean, has it really been since 2017, since they acquired Aviva? Man, that puts, like, time gets away from you. It's hard to believe that's been that long.
Well, Christine, you've been looking at into Schneider software strategy more broadly. Can you fill us in on that, what they're up to and sort of how Bentley might fit into that part of their positioning?
[00:26:40] Speaker A: Yeah, for sure. And I think I really want to echo what Eric said about integrating the design to automation. And Strider's really interested in creating that ecosystem, that end to end solution for all of their customers. And to do that software is truly core to Schneider's business strategy. In their latest capital markets day presentation, back in 2023, the company introduced its one software strategic priority. Without getting into too many specifics, the one software strategy essentially is Snyder's endeavor to create this end to end suite of software solutions by integrating, better integrating their various software acquisitions over the years so as to be able to cover the design, build operations and optimization of industry assets for all of their customers. Currently, many of Schneider subsidiaries are already able to perform these functions. However, when we look at the water industry specifically, just like Eric had alluded to, Schneider is kind of missing out on the design piece, especially design software that caters especially to engineers and engineering consultants. So if we look at the Aviva portfolio, the design software isn't really targeted at water. It's more so for process plants, marine, and the power industries. Whatever kind of software that is available within Aviva is more so, kind of catered to water operators rather than the design side. So essentially what I'm getting at is that there is somewhat of a gap currently in Schneider's one software strategy, just based on the current subsidiaries and logos that they currently have. So that is really where Bentley can potentially fit in, both within water as well as for other industries that Bentley and Schneider play in. So, to put it simply, if Bentley were to become a part of Schneider's portfolio, specifically its one software strategy, Schneider would really be able to achieve that end to end solution, and it could effectively become a one stop shop of sorts for both asset as well as network management solutions.
[00:28:43] Speaker B: So if that is in fact the case, what does this mean for the peer group or the industry? As a whole or other companies? Is their peer group sweating right now because of this?
What's their position on that?
[00:28:57] Speaker C: I'll make a couple of points, and then, Christine, I'm sure you've got some insights out on this, too.
So if we maybe take each group in turn. So from the Bentley perspective, the other really big name that kind of competes with them in their core business would be Autodesk with Innovise. And so that's been a really interesting story in and of itself. I mean, Autodesk bought Innovise. It's been about three years now since that deal was, uh, at first announced.
They've been going through that process of integration. Certainly. They're, you know, they're, they're, I would suspect on maybe the tail end of it at this point. But one of the big changes that Autodesk has kind of put in place is Autodesk is really, really heavily focused on subscription revenues. Right. They've very aggressively, more so than really anybody else that I've seen in the industry moved from that kind of legacy perpetual license software model to more of a subscription based, you know, many cases kind of SaaS or cloud based type of a model. And so they've really been pushing that very heavily on in, advised customers that maybe weren't used to that. And I've actually had conversations with some utilities around the country, around the world that are a bit turned off by that from maybe a security standpoint or just the way that they're used to doing business with their software vendors. And they're actually considering moving away, kind of ditching innovise, autodesk and moving to some of their competitors because they're not quite keen on that model. So that bit of integration hiccups there still kind of playing out. And certainly if were talking about Bentley getting scooped up by Schneider and all of the integration that would have to happen there, it does start to open the door for maybe some other types of players to some smaller players to kind of swoop in and try to gain market share. And so thats something that were kind of talking about in our research were doing here, is that DhI is kind of another competitor to the two of them. But youve also got smaller kind of startups and newer players like KTM and Aquanuity that fall to some extent into this modeling and digital twin space that might start to see, might have an opportunity, might have an opening to gain some market share if innovise is still a bit bound up with autodesk integration. And then Bentley gets pulled into this years long integration saga with Schneider, ill also mention on the Schneider side and then maybe Christina, ill let you jump in the fact that Siemens has had such a long standing partnership with Bentley. They've had kind of a multi million dollar strategic partnership and made some kind of joint investments and developed some joint products that are kind of offered to the water industry, among others.
As Christine mentioned, Siemens had about a 14% share when Bentley ipo'd. We think it's dropped down to about 5%. But Siemens still is kind of a major partner and a major player in the Bentley ecosystem. And so for Schneider to kind of swoop in and pull Bentley out from under their nose, kind of sticking it to one of their major competitors in the industrial automation space. But we have been seeing Siemens, among others, Siemens, ABB have both been doing some interesting kind of more water specific deals, right? I mean, from our perspective, in terms of ScaDa players, Schneider has been one of the more focused on water. Siemens and Abb, a little bit less so. But Siemens actually just bought bunt Planet, which is a spanish leak detection, very like a water pure play. ABB also recently, earlier this year bought a water quality monitoring company called Realtek. So we are seeing a bit of a shift here within this group of players, more focused on kind of the digital water ecosystem and their capabilities there. And so I think theres a lot of really interesting movement here. Certainly this Bentley deal would be orders of magnitude bigger than either of those two. But it is interesting to see how these players are taking a fresh look at where water sits in their portfolios.
[00:32:38] Speaker B: Christine, what about you? I mean, any other players that might be thinking about this in greater detail?
[00:32:45] Speaker A: I think for sure. I mean, like we have mentioned Bentley and Schneider, they are some of the biggest digital water players that are playing within the space. So if there is a marriage of sorts between both of these companies, this will really push SCHnEIDeR forward even further, both in terms of its competitive edge, but also in terms of their market share within the digital water space. And this will definitely bring SCHneIder much closer to other industry heavy hitters like Xylem. And there's going to be a major shakeup with if a deal like this were to happen. One thing I do, this is a bit of a side note, but about the kind of subscription model that Autodesk has been really pushing, I think one thing that's interesting we see from Schneider is that they too are also really pushing for a very subscription oriented business model. And Bentley, they do have both. They are, they do sell their software both on the license model as well as a subscription model. But if there were this integration and a similar push for subscriptions from Schneider, similar to what we see with Autodesk, how that will kind of affect what the water industry prefers in terms of its preferred vendors for these technologies, I think that's going to be very interesting and it's something that we'll have to kind of wait and see.
[00:33:58] Speaker B: Wonder how much of this. Also as a side note as well, how much of this is a defensive move by, by Schneider. Right. They know that Siemens has been courting Bentley over the years. So have they just seized on the moment and the opportunity to say, hey, let's step in? It keeps it out from under Siemens, a direct competitor, and they get to build out or sort of fill out their, I think, stack is the way you put it, Eric, within the water space. So that may be another benefit as well, sort of maybe what you're getting at. Yeah, I think it's interesting. I mean, where we, you know, you've got these, they're kind of the brains of the system, right? You know, they're sort of behind the scenes that, you know, Schneider, Abb, you know, these Scada system operators, Rockwell being, you know, they have, they're sort of behind the scenes that they're making everything, sort of bringing it all together, all the information and the systems to work. Whereas more often when you say, oh, who's the big players in the water sector, oftentimes people just say, oh, Veolia and Suez and Xylem, it will ultimately impact them maybe through partnerships, supply chain, who they work with as well. So I think it's really interesting how that's playing out. So this is a big deal potentially, right? While we're in initial talks, we said Bentley's value did, at least at the time of his IPO was about $16 billion, maybe gone up or down a little bit. Is there any other m and a that we're seeing? It's been a little slow in general because of financial markets, cost, capital, etcetera. Are you guys seeing anything else that's of note, worth mentioning? When it comes to m and a.
[00:35:44] Speaker A: I think the market definitely is, as you alluded to Reese, it's been slow and it continues to be very slow. We don't really see a ton of activity on the digital m and a front. I think we did a previous episode about the badger acquisition of the Telug and unity of brands over from Trimble. So that was pretty significant. Some other, I guess, market events that I would like to highlight is Autodesk earlier this year made an acquisition into Vapor, which is an australian pipe condition monitoring company. And Autodesk has since integrated Vapor's technology into some of their platforms as well. So that's very interesting to kind of see how Autodesk is continuing to beef up its offerings for the water sector. Vapor especially, it's really rising as a player. That is of note, at least on the startup side. Another partnership that I really want to bring up is recently Microsoft has entered into a partnership with Agonova to help with kind of leak detection, specifically in Spain. We know that Microsoft has been interested in the leak detection space for a while. It's probably part of their broader kind of corpus of social responsibility as well as sustainability efforts. I mean, previously Microsoft has a longstanding partnership with Fido, which does a similar thing. And with that partnership, we've seen it mostly in the UK, the US, as well as Mexico. So with this Agonova partnership, Microsoft is further expanding this kind of philosophy, I guess, over into other european countries, specifically Spain. So I think Microsoft is a player that we're definitely keeping a close eye on to see what they're doing in general. Big tech is always very fascinating just because of their water footprint, and also, therefore, it's interesting to see what they're doing to kind of mitigate that. So those are two, I think, events I would like to bring up.
[00:37:34] Speaker C: Christine, I think on that Autodesk, that was an investment, right? A strategic investment, not an acquisition?
[00:37:39] Speaker B: Yes.
[00:37:40] Speaker A: It wasn't an acquisition.
[00:37:41] Speaker C: I think it was a 5 million australian dollar VC round that vapor got from Autodesk, as well as Pureterra, a couple other investors. So just wanted to throw that one out there.
[00:37:53] Speaker B: Nice. All right, well, that's super interesting, super helpful. I mean, it's interesting. I've been sort of working through in my head, if someone could see the whiteboard in my office, sort of looking at a timeline of how investments are happening over time and where the interest is, whether it be from early in this 20, 2010 from Desal, then we shifted to reuse, and then there was obviously some focus on fracking. And then from 2015, 2016, we're seeing a lot more activity into the digital space. Private equity played a role, low cost to capital that grown and evolved. Then obviously COVID came. We've gotten into workforce management and how to deal with that remote work and sort of remote asset management during COVID And now because of all federal dollars, whether it be in the US or you're also seeing dollars go into Europe, it's really about infrastructure and assets and sort of rehabilitating question is. So maybe that's part of the softening as well when it comes to digital m and A. It'll be interesting to see where the market goes forward. And I'm sort of framing that out right now. So can appreciate the, if not slow down in digital m and A, and part of it is just integrating all of this into these larger companies. Some have been pretty active, I would add Reese.
[00:39:17] Speaker C: Cybersecurity and AI definitely would be two themes to add onto the tail end of that. I think certainly a lot of the VC investment that weve seen in the digital water space over the past maybe year or so has been very heavily weighted towards cybersecurity companies. And I think also just more broadly, theres a lot of VC dollars going into AI. Vapor is an AI company. Thats a good example of that. Transcend was another water software player that got some funding from Autodesk, I think, last year thats also using AI. Those are two maybe very specific digital themes that are starting to see some big dollars in the past, maybe year or two.
[00:39:53] Speaker B: Yeah, I like it. I think that's sort of, as far as I'm concerned, the right hand side of the timeline, like where are we now and what's emerging. So I like it. I appreciate that.
[00:40:04] Speaker C: I can't see your whiteboard because you've got your nice fake tropical beach background on Zoom here, so I just wanted to make sure you threw those on.
[00:40:11] Speaker B: Well, who knew if you guys would show up on time, then I wouldn't have time to screw around and look for fancy backgrounds. But that being said, anything else to add? Any research going on that's worth talking about, share with the listeners?
[00:40:27] Speaker A: Yeah, I'm in the process of crafting one of our large reports for the year for digital service, specifically on the top market players in the digital water market. So I think that's something to definitely look forward to. Schneider and Bentley are included in that list, among a bunch of others. So I hope that everyone can look forward to that. But also, I think for Eric as well as myself, conference season is definitely around the corner, and we're both looking forward to getting out there into the industry, sharing our insights and also speaking with various people all around.
[00:40:58] Speaker B: Yeah. So, all right, so let's seize the moment. I know the marketing team would appreciate this. You guys are both going to be at Ace. Yes.
Eric, you're going to be at Swan, if I recall.
[00:41:09] Speaker C: Yep.
[00:41:09] Speaker B: Coming up in May.
[00:41:10] Speaker C: I'll be at Swan. In Vancouver. Christine and I will both be at Ace in Anaheim in June. And then, Christine, I think you fly right over after to Singapore International Water Week, right?
[00:41:19] Speaker A: Yes. So Eric and I are both presenting at Ace, and I will also be doing a presentation at Singapore International Water Week. So looking forward to hopefully meeting some of our listeners there.
[00:41:29] Speaker B: Nice. And I get to see Eric next week in Hotlanta.
[00:41:34] Speaker C: That's right.
[00:41:35] Speaker B: So we'll be in Atlanta for client meetings. So look forward to seeing you there, Eric. And then.
Yeah, and I think even at the same time, our team is going to be at ifat in Munich. So our Europe team, plus some, I think John Berryman from here will be in Europe at the same time next week. All right, well, we go on and on. So that's all the questions I got for you. This is super interesting, super helpful, and I'm glad this has worked out. And I look forward to any research you guys put out on, on this pending deal, so to speak. So thanks again, guys, and we'll talk soon for sure.
[00:42:13] Speaker C: Thanks, Reese.
[00:42:16] Speaker B: All right. That was super interesting. I know it gets pretty technical, at least it does for me. I'll speak for myself. But if there are a couple of takeaways that I just sort of wrap it up. One is the merger of these two companies. What it means for Schneider is that they're really combining the, you know, bridging design to operations, looking for efficiencies that way. And in a way, it's kind of what Bentley and Schneider had been doing. They've been sort of working from different ends of the digital value chain and they're converging. And so once they come together, if it in fact happens, they will then provide sort of a full value chain suite of products. So I think that's interesting. The other is kind of changes the competitive landscape. Like I said, Schneider is a big company. They do a number of different things. They're really diversified in a number of different sectors, but even within the niche water sector, it will push them up as far as total revenues and how they stack against the leading players in water. Christine's working on some research on that right now. Competitive analysis of a number of different companies. So this will definitely have an impact, big of a deal, the size. And then lastly, this comes with big acquisitions, just integration headaches and what that might mean for not only the companys company culture, but also the customer base. I think one thing to think about is that Bentley was really, if you want to call it a family business up until a couple of years ago when it had its initial public offering. And then now, as Christine mentioned, the last of the Bentley brothers is exiting. And so if in fact, Schneider does step in, it's going to be not only a large, diversified company rolling them up, but then they're french and they have their own culture that it will take to play out over time. Now, what does that mean for the water sector, municipal customers and government customers?
They're not so touchy that they're going to switch so quickly. But the question is, will they get frustrated? They're certainly going to be asking a lot of questions about, you know, what are the implications of this? And so they might get a little squeamish along the way. And so what does that mean? That means that some of their peer group, which we talked about like Autodesk, might be interested or be able to seize on an opportunity is a better way to put it. So really like that. I appreciate this to jumping on. And lastly, you know, I just want to give a shout out. You know, people ask how I do this. I was at dinner with someone not long ago, and they're like, you do this podcast. How do you do it? Who does it? Well, I work with the team who do it. Quite honestly, I don't do it. I get on and have conversations with the analysts. But I get a lot of help from Mike Galer, who produces this. Kelly Talbot, who works on the production side. Ryan Sullivan and Steph Aldoc work on marketing. So there's a lot that goes into this. It's not just as easy as throwing a mic on the counter and talking with analysts. There's a lot of stuff that happens on the back end, not only to produce the podcast, but also to get it to you and let you and you guys know. And if you're interested in keeping up with when we put them out every other week, you can always sign up for Waterline, which is our weekly email. So before we sign off here in Boston, Barcelona, or quite honestly, anywhere, let us know. We'd like, we'd enjoy the opportunity for a meeting. Like I said, Eric and I are meeting with clients in Atlanta next week, early at their request. So there's your opportunity just to talk with us, even if you're not a client. Please subscribe. Give us a review. This podcast is for you and everybody else out there in the water sector, or those who are just interested in water. So the more, the better reviews we get, the more it gets out there. It helps us out. Send a note to us with questions, comments, topic ideas, to water expertsluefieldresearch.com dot lastly, tell a friend about it, say it again and again. And then this podcast and these water industry insights have been brought to you by the one and only Bluefield research. To learn more about us, visit
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