[00:00:01] Speaker A: 6.2 billion.
That's what France based Vivendi spent on US Filter in 1999.
Five years later, US Filter was sold off to Siemens, that German company which ultimately became Evoqua and is now part of Xylem. That company, Vivendi, was rebranded as Violi in 2003 and has since evolved through acquisitions and of companies like Suez, which had also just rolled up GE Water, which cemented Veolia's position atop the water industry with $18.8 billion in annual water revenues.
That's my history lesson for the day, and there's even more to unpack within these companies. Perhaps we'll do that next time.
I am Reece Tisdal and this is the Future of Water, in which we talk about all the ways which companies, utilities and people are addressing the challenges and opportunities in water. This is episode 128, that's 1 to 8, and I have a feeling it's going to be a good one. That's because we've had a lot of practice. There are 127 more of these before this, so give them a listen. But also more importantly, today I'm joined by Bluefield Senior Analyst Antonio del Omo out of Valencia, Spain, to unpack our latest analysis of TACA's 1.2 billion dollar acquisition of Spain based GS Enema. Yes, we've talked about this previously on a podcast, Antonio and I, that is, but only speculatively.
This deal underscores Taco's Middle east roots. But also this conversation we're going to talk a little bit about desalination and water as a core pillar of TACA's global strategy going forward, including in markets such as Europe and Latin America.
Why am I excited about this topic? Because it kind of gets at some of the key questions shaping the water industry and strategies and trends.
What does TACA gain by acquiring GS and EMA and its global portfolio?
How does exposure to Europe and Brazil shift the company's risk profile?
And what does this deal signal for competition? What does it mean for the other companies in the water sector that TACA is now running about the world with significant backlog in countries like Brazil and Spain and other markets? I look forward to the conversation with Antonio, but before we get to him, you're going to have to bear with me just a little bit longer because one thing caught my eye this past week.
Waterbridge Infrastructure's planned ipo. Actually, it happened yesterday, day before this recording.
It highlights the rising importance of water in the U.S. oil and gas sector and economics with a dominant position in the Delaware Basin and long term contracts, the company sits at the center of what we call midstream water, midstream water markets, which Bluefield has forecast to reach $156 billion by 2030.
While the financials show growth and strong cash generation and all the other selling points of an ipo, the deal does make me think of the sector as broader tailwinds, soaring natural gas demand because of things like artificial intelligence as well as EU demand, given what's happening with Russia and Ukraine. And then also lastly, more importantly and impactful to the water sector, are tightening disposal constraints in places like Texas and the Permian Basin or New Mexico. So a couple of quick takes reinforcing the point. U.S. midstream water is projected to exceed $156 billion by 2030 combined. 2025 to 2030, or approximately $28 billion per year in water related services.
Let's stop and think about that for a second. 2018 $8 billion in one year for water management.
Two thirds of this water management is tied to the Permian Basin in Texas and New Mexico, which reinforces Waterbridge's strategic positioning where it is. The Permian is also home to other big midstream water companies like select and arris, which was actually also just acquired recently.
Then lastly, I would say the growing disposal constraints, seismicity concerns, meaning causing potential earthquakes and regulatory pressure, have and are accelerating investment in recycling and pipeline infrastructure to move water around to the different well pads or to treatment facilities or disposal facilities.
So it's been a minute since upstream oil and gas hit the fan, but it's high times right now. I think administratively in Washington, it's a favorable climate. I think if anything there's definitely some consternation in terms of economic outlook. So I think everybody's riding this wave as long as we can. But I would say just from my own experience in analyzing these companies and working with a team of analysts that do the industry midstream water management segment and specifically has matured and they seem to have gotten more control and it seems a little less what I would say, crazy than it used to be in 2014, 15 and even from 16 to 2020.
So with that being said, let's get to Antonio Del Olmo and talk a little bit about taca, GS and EMA and some M and A.
All right, so I'm joined here by Antonio Del Elmo. Antonio, welcome back to the podcast. How's it going?
[00:05:45] Speaker B: Hey, nice to be back after the summer.
[00:05:49] Speaker A: Well, speaking of summer, is it still summer there? Like temperature Wise. What's, what's the story in Spain?
[00:05:55] Speaker B: Well, it's pretty hot. I mean, yeah, it's pretty hot. I'm still taking, you know, going to the swimming pool every now and again, so you can imagine it's pretty hot here.
[00:06:05] Speaker A: Yeah, yeah, I think we've, we've moved beyond swimming pool weather here, which is actually nice. It's the nicest time of the year in Boston, if not anywhere where cool mornings, warmish days, but not quite good enough for swimming pools. I don't know who has an outdoor swimming pool in the northeast of the U.S. in any case, that's a whole different story. So. All right, well that's my weather check of the day. I forgot to do it last podcast. But that's where we are. So shout out to all you weather watchers.
And that being said, let's talk a little bit about what you've been up to. So it looks like, and this is a bit of a refresh because I think it was a mid summer, there was some speculation that Taco was going to buy GS and ema, the Spanish engineering company, quasi Spanish engineering company because they were owned by a Korean company. A little strange there, but Abu Dhabi's TAKA acquired it for $1.2 billion I believe. I don't think it was euros, I think it was dollars.
But TACA has long been known as a power and desalination player in the Gulf or Mideast states and GS and EMA has worked there as well. But this is an interesting acquisition because it means a lot for Taca, I think. And so you've done some research on that. So maybe we should go through some of the details about the deal.
What does this mean strategically? What does it mean geographically? What does it mean competitively? So with that being said, Antonio, who are these companies that are involved in the deal? Give us another refresh on what we're talking about and then we can go into some of the details.
[00:07:50] Speaker B: Well, as you said, Taka is the Abu Dhabi National Energy Company. It's a state owned company, 100% best known for power generation and desalination in the Middle east, right in the Gulf.
Until now, water was a secondary function to its portfolio, more or less. Not anymore, obviously.
Gsinim, on the other hand, as you said, it's a Spanish company. It was funded by a construction company in Spain and it was sold in the early 2000s to GS Engineering, Construction Group, Korean Group. And GS Nima has spent decades building, financing, operating water projects, owning over the world from diesel plants In Spain and Portugal very recently, by the way, large concessions in Brazil.
I think they also manage a waste diesel plant in Chile in the Atacama desert.
So together both companies are combining the scale, power and water of the Gulf with GS Mima's international projection and expertise and L and M expertise.
[00:09:02] Speaker A: So I agree. I mean I think. Well, whether it be an email and I know you're tired of hearing me talk about this, probably everybody in Bluefield Research is. I love the Spanish engineering companies because I think they're super interesting. Both what they're focused on.
There has been an ebb and flow of their success. I don't know of another way to put it over the past, you know, maybe 10 to 15 years or big build out, crushed by the Great Recession, building out active in renewables. But like you said, Anema is actually a really interesting company because they do have a global footprint. In fact, if I look at your numbers that you've put out in some of the research only, is it 4% of their revenues are actually out of Spain? Is that really what we're looking at? So it's actually. That's a smaller footprint. Their biggest chunk is in a place like Brazil.
So the fact that Taka is coming out of the Middle east, does that mean they're going to be operating in Spain or other parts of Europe or Brazil for that matter? Is this really what their long play is?
[00:10:05] Speaker B: I believe the TACA was. There are two sides of the story. First, Taka wanted to enter the water market and has been trying to enter the water market for quite some time. And then there's the other part of the story is that they've been trying to enter the European market for quite some time as well. They even tried to buy an energy company here in Spain which the deal was fenced off by the Spanish government which didn't want Emirates to be here in Spain at all.
They've been after this deal for quite some time. I think you mentioned summer. I think this deal we have been talking about for two, three years, I don't know, for a very long time.
I think Taka right now, their position in the Gulf gets very reinforced with the deal and they get assets in Spain, Portugal, Brazil, Chile, like I mentioned, all over Latin America. So effectively, yeah, I think Taka is, I know for the fact that they were already trying to build some energy plants in Morocco. So yeah, I think we can consider them than a global player and both in energy and water.
[00:11:26] Speaker A: Yeah. And I suspect it also helps that they've, I think They've, if I read correctly, they've worked together in the past, Right. On desalination plants.
[00:11:35] Speaker B: Yeah. They were in a jv. There's a diesel plant, I don't remember the name by heart, in the UAE and they have a joint venture. I think it's Taka, 70% Geoc, Nema, 30%, something like that.
[00:11:48] Speaker A: Yeah. And I think, you know, and I would just correct myself because I'm just looking back at my notes, it wasn't revenues as far as where GS and EMA geographically focused. Like I said, 4%. I think that's their backlog. Right?
[00:12:00] Speaker B: Yeah. So the thing about Brazil is we know that the country is one of the largest growth markets in the world right now. Right? Right.
They passed that 2020 sanitation law which opened tenders to private players.
And that makes it very attractive for many companies. Not only geocenma, but a lot of other water utility and engineering companies are pushing to get into the country right now.
[00:12:25] Speaker A: Do you think that once the deal was consummated, do you think that really the focus.
Maybe. This is a simple question. Is it global in nature and therefore Taka is going to keep all of these assets and positions? Does. Did they look at it? Hey, this gets us into Europe. You mentioned they had tried before with a power company. It just, I don't know, it feels a little strange to me that TACA is now going to own some.
A big chunk of concessions in Brazil. Does that make sense? I mean, or do you think that they might spin one or some of these positions off now that they've got. Now that they own the whole piece?
[00:13:08] Speaker B: Yeah, I've been thinking about this as well a lot.
My impression is that if the deal has been in the making for two years, more or less, let's say two years.
GS, the move that they made to start bidding for contracts in Brazil is pretty recent. I mean, we're talking about precisely that time period, like one year, two years ago. And they've been awarded the contracts very recently.
I don't think they would have done that move if it would have not been something at least that they discussed with Taka with a potential buyers. Right? I guess. I mean, that's my impression. So it wouldn't make sense to me that Taka, after being negotiating for all this long and knowing that GI Cinema is trying to get into Brazil now suddenly goes and sells everything. Right.
I mean, wouldn't make a lot of sense to me, but I mean, it's a possibility, but I think we're looking here at a Global player. It's not only Taka. I think that the Middle east companies are aware of the importance of water companies and they're investing very heavily in water. And this is Taka's move. This is their chance to become someone relevant in the sector. They're obviously, they're far away from companies like Veolia, but I think we should consider them a relevant player going forward.
[00:14:36] Speaker A: I think everybody's far away from Veolia at this point. I think. I don't know, you haven't heard the intro because you came on after the fact. But you know, I was sort of unpacking the history of Veolia and what it all means for them. I mean, they're Veolia, their water business is what, about 18 and a half, 19 billion US dollars per year? I think that's correct.
[00:15:03] Speaker B: Veolia is in another league.
[00:15:05] Speaker A: Yeah, in another league. And I think, you know, looking you're. And I think this to your point about, you know, what was Taca buying? And correct me if I'm wrong, GSNEMA has about what, $350 million in annual revenues.
[00:15:18] Speaker B: Yeah, that's it.
[00:15:19] Speaker A: 85% of that is concessions. So that's. Is that really what they're buying? I just think it's interesting to see that that's what they're doing because I get the decile piece, right? They understand decile and the decile markets and opportunities are few and far between. They're pretty lumpy, large scale, particularly outside of the Middle East. Right, Middle east, there's like a steady build out in markets like uae, obviously Saudi Arabia is by far the largest market in the world. But then you start getting into Spain or Australia, definitely the U.S. i wouldn't count on that for a big, you know, large scale diesel market. It's pretty lumpy, pretty tough, tough business to be in. So no, I think it's super interesting and I mean, is there any. Do you have any idea who else was interested in gsnema, you think?
[00:16:12] Speaker B: Well, according to the press, we do know the Quebec pension fund was interested at some point. We don't know when they dropped out of the run to buy Chia Cinema. We do know as well that at some point Aqualia and Veolia were interested in the process.
Again, we don't know when they decided not to continue, but yeah, I mean, at least those. And we don't know of other players, but one can only assume that any player like I wouldn't be surprised if Aramco or Savi, the Saudi water authority was also trying to get into Chia Cinema and couldn't at some point. Or Marubeni for that matter.
[00:16:58] Speaker A: Yeah, Japanese trading houses are always a little.
They always take off little slices. Rarely do they take the whole pie.
So you would think, you know, I know they definitely do that on desal plants too in the Middle east. They'll take a 5, 10% stake as far as companies, the big companies.
[00:17:17] Speaker B: But it would have made sense for them to buy. They bought ags in Portugal, so buying a company with a big portfolio in Brazil makes sense. Right, and they have several concessions in Chile as well, so it would have made sense.
[00:17:33] Speaker A: No, I think that's a fair point. The Japanese trading houses, they are interested in those Latin America markets as well. They've always, whether it be Mitsui Marbani, like you mentioned, they're companies that have been sort of circling Latin America, let alone the rest of the world. That's a really good point.
Who are the peers to.
Whether it be Taka and. Or GS and ema, who have you compared them to in the research you put together?
[00:18:00] Speaker B: I mean, like you said, the Saudi Arabia state owned operator is by far the largest one. Then we have Aqua, which are. Those are. Those two are the leaders and Miami leaders by far. I think they have a digital capacity of about.
I think it's 6 to 7 million cubic meters per day.
And then there's Veolia with 1.5, I think 1.6, 1.5. So NG Group, owner of Veolia, so Taka right now with the acquisition now stands forth with about half of Veolia's diesel capacity.
So they could be comparable to either. You could look at obviously Veolia, but you can. They're similar to the, to Axiona's portfolio in the region, more or less. That would be the most immediate competitor that they would have there.
[00:18:55] Speaker A: Yeah, I think it's. And I. It's been a minute since I looked at the details of psal. I don't know and I don't know if you dug into this. How much of the facilities or assets in the Middle east for TACA are like you said, they're really a power and have historically been secondarily a water player. But how much of their, how many of their facilities are what we would call integrated water and power plants? Meaning they're kind of. They're both. Right, a D cell and a power plant versus just a standalone reverse osmosis?
[00:19:29] Speaker B: No, all of them. All of them actually. The JV that they had with GS Cinema Was precisely that. Right. It's a solar powered diesel plant. So it made sense for them to be the part of the contractor in charge of the energy and energy design and all that stuff. And GS Nima being the water specialist.
[00:19:51] Speaker A: Right.
[00:19:52] Speaker B: And that's kind of how the contracts that they actually have have been configured from their side. So they have been a partner to these JVs and they have always been there because they had the expertise in energy.
[00:20:06] Speaker A: No, that makes sense. So why is GS, the Korean company getting rid of them? Why the divestment?
[00:20:14] Speaker B: Well, I'm not going to say rumor has it because they did had an incident in the. I think it was the 2000 and tens in the mid 2000 and tens with a parking. I think it was a parking lot. They had a big liability within the company and they were under some financial distress.
Ever since there has been talks of trying to divest in GS, in ema. I'm not sure it has to do with the fact that INIMA has been insolvent or they're not an attractive asset. It's just the fact that they're probably, probably the asset that's easier to sell for them.
Which is ironic because they took like eight years to do so.
But still I do think it's an attractive asset and I don't think it has to do with any money. It has to do with the financial situation of the holding company.
[00:21:07] Speaker A: Right.
Yeah. I mean it's interesting and sort of maybe back to where we began or at least one of my earlier statements about the Spanish engineering companies. It's interesting.
There has been a lot of changing hands over the past what, three to five years. Some of it self inflicted, some of it, you know, like whether it be to the agua they own by, by the Vinci group, French group. I was actually going back through some private equity analysis. Valorisa. Yep.
Yeah. They're owned by a private equity firm now. Is that correct or someone else? I can't remember exactly. I was just looking at it. So they've changed and then you've got Avengoa.
[00:21:56] Speaker B: Cox.
[00:21:57] Speaker A: Yeah, yeah, that's Cox. But that's. And that's subsequent to their going bust. Who else am I missing? Anybody else? Catagua. They've been steady under federal. No.
[00:22:09] Speaker B: Yeah, they are. Well, I mean other. Well we do have in Dakua that was. That bought idrocastion here in Spain as well. In Daqua being a big Portuguese player. They bought Idrocastion in Spain as well.
So yeah, there has been a lot of movements.
[00:22:27] Speaker A: Yeah. This is what I came across. I don't know if this is true. It's Valerisia, the Servicios Medio Ambientiales owned by Morgan Stanley Infrastructure. Is that right? Could be that's the case. I think I have that in my notes. I was just looking at this yesterday for something completely different and I think that was October 2023.
I'll look back into that detail. So sorry if I'm. If I'm wrong, I apologize to all the listeners out there. But point being is there has been movement among these Spanish companies because like I said, they've been. There are these ebbs and flows in construction, European markets, decile markets.
A lot of them, like I said, were heavy in renewables. And they've been kind of beaten up a little bit by that. I know that's part of Abongo's problem as well, I think.
So it's interesting to see now that ANIMA is changing hands. Well, is there anything else to add? Anything that jumped out of you that you thought was interesting about doing this analysis now that the deal is closed?
[00:23:35] Speaker B: Yeah, I mean, I don't know about you, but the fact that this was deal was close only for 10x10 times EBITDA. Yeah, yeah, yeah. That made me wonder because every deal that I before joining Bluefield, every deal that I had come across had been like 14, 15 times EBITDA, especially in the water sector.
So that made me wonder why GSNEMA was valued. I mean, I'm not going to say badly. 10x is still a big chunk of money.
But yeah, when you look at the backlog and where their revenue comes from, you notice that they're very concentrated. Their market is very concentrated.
Two thirds of their revenue comes from the uae.
So that makes this acquisition only interesting for people working in the UAE and for Taka. That makes sense. But maybe not for other players. We mentioned Marubeni. Maybe that's a liability that they did not want to have.
And the Brazil issue, obviously the two thirds of their backlog being from Brazil.
You're exposed to Brazil's politics, to currency issues, instability in the region, which has been more or less the general tone there for the last 20 years.
So what I mean to say is that maybe some of the runners to buy GS Mima just dropped from the race because of this.
[00:25:02] Speaker A: Yeah, Brazil is not for the meek.
It is. It's a tough market.
There's lots of ups and downs. It's costly.
There are a lot of.
And like you said, politically even they're going through their own political nonsense right now.
[00:25:20] Speaker B: Or maybe it's just like we've been talking about this internally as well. The interest rates. Right. Money is more expensive right now. So maybe it's just that valuations cannot get as high as they did some years ago.
[00:25:33] Speaker A: Yeah, and that's something I've been looking at and this is separate discussion but looking at the role of private equity firms in water. What do they own? There's, it's in the news every day where partly because of whether it be cost of capital, I think some of these companies are kind of in a, in a bit of a tough, tough position. Meaning that, you know, they buy with debt basically and money's expensive and they can't do it and there's no IPOs we're not seeing and they're very. In water, there are very few IPOs. There's only a handful that you see even over the past five to 10 years. So yeah, it's like I said, it's a bit like. I think it's a, it's a risky proposition if you pin it on Brazil. But if you're in the Middle east and there are only a handful of like real. When it comes to water engineering companies, solutions providers, Middle east is a pretty consolidated market and it's very centralized. Right. So those who are, you know, the system, it's not the utility ownership and systems is not as consolidated. So it makes it tough in that regard. It's not sort of a wide open market opportunity. So. Well, I think it's super interesting. Like I said, we've been looking at this for a long time. The first report we ever did it, Bluefield, the big report was released in 2013 was a decile report looking at ownership of desalination, desalination assets, equity, net equity positions. I remember looking at TACA then. It's interesting to see what they're doing now. It's interesting to see and I feel like they've been talking about this, like you said, for a while of getting out of the Middle east, going further and farther afield and maybe this is, is this their big jump or a manageable, manageable jump for them? So it'll be interesting to see what happens in places like Europe and, or Brazil with their strategy.
With that being said, what else you got working on before I let you go? What do you, what are you digging into research wise?
[00:27:48] Speaker B: Well, we just published the Germany country profile, a nice one for anyone working in the region. So gets a good outlook of the German market if you're interested in that.
[00:28:00] Speaker A: Germany's a tough market.
It is not consolidated, it's highly fragmented and it's really hard now.
[00:28:09] Speaker B: Well, yeah, but that happens to be the case for all of Europe. Right. Every time we start, speaking of a company, we always start well. Yeah, well, Belgium is very fragmented. France is very fragmented. There's lots of localities.
The market is very hard, very local.
That holds true for a lot of parts of Europe. Germany as well.
[00:28:28] Speaker A: Yeah, I think Germany is interesting because the other thing is culturally they all do things a little bit differently across the European markets. But you guys, the, the Europe team, you guys have put together a nice string of country profiles and reports, whether it be on, you know, Germany's one, France, we've done Italy, obviously, we've done Spain, we've looked in depth at the.
[00:28:53] Speaker B: Uk Benelux right now we, I think we will do Poland by the end of the year, probably Romania as well. But right now what we're working on very intensively is the Stormwater Europe Stormwater report.
That's a big one and we would like to have it published by the end of the year as well.
[00:29:16] Speaker A: Yeah, there are a lot of, I'm not going to lie, there are a lot of reports coming out of Bluefield. It's probably the biggest stack of large reports coming. We've got midstream oil and gas coming out in coming weeks. We've got municipal water or wastewater reuse that's coming out. I know that's gone through production. That's pretty close.
[00:29:38] Speaker B: PFAS here in Europe as well.
[00:29:40] Speaker A: PFAS in Europe, Stormwater there. We've got a trenchless report coming out in the us.
[00:29:47] Speaker B: Energy efficiency as well.
[00:29:48] Speaker A: Yeah, that's just Europe, right?
[00:29:50] Speaker B: That's Europe or is it? No, I think it's global. I think it's global. There are, there are business cases about us as well and all around the world.
[00:29:58] Speaker A: Yeah, yeah. So that's more digital focus. That's coming out of the Europe. You're out of the Barcelona office. I know that's where it's being worked on.
And then there's. We're digging into heavy industry in Canada right now. That won't be a long form report, but there's insights happening there and then just a string of other research notes. I know we're looking at something for water management, mining right now, particularly in Latin America. I think the kick for that was Anglo American buying tech and then they own desalination assets for mining in Chile.
Next thing you know, it's sort of spiraled into something else and talking about waterless mining for Vale in Brazil and super interesting stuff and maybe too much information for the listeners. But my point is that if everybody signs up for Waterline, you'll get the notifications when these reports are available.
All right, well, that. Anything else before I let you go? It's Friday. The weather's beautiful here. It's your. It's probably lunchtime for you. So anything else?
[00:31:07] Speaker B: No, not much. I mean, hopefully we can get published more stuff and I'll come back soon. So.
[00:31:14] Speaker A: Yeah, that's, that's what it takes for all the people of Bluefield Research, if you want to be on the podcast, publish research.
[00:31:23] Speaker B: All right.
[00:31:24] Speaker A: Well, Antonio, thanks a main for jumping on. I really appreciate it. This was interesting and I like this research note. So if anybody's interested in this research on taca, GS, anima, Spanish markets, Germany, like you said, you can always just reach out to us at what are
[email protected] and Antonio can hook you up with some insights. So. All right, Antonio, take it easy. We'll talk soon.
All right. So I really like that conversation because it was just a conversation. It's kind of how we talk about things in the office.
But I also like this research note that Antonia put out because Taka's move for GS and EMA really does drive home three things. Acquisitions as a growth leverage in the water sector, pushing into new markets from the Gulf to Brazil to Spain is super interesting. So the build out of a global player and where that goes and then putting water infrastructure at the center or a big part of their strategy. I think that's interesting to me. That's a playbook. Scale diversification and making a water pillar of global growth.
So with that being said with Antonio and me, thanks for being part of the journey. And before we sign off, I want to recognize the team that makes these conversations possible. Possible. Mike Gaylor, Ryan Sullivan, Kelly Talbot. Stuff all Doc. Without them, this podcast wouldn't make it past my own desk, which is where I sit right now. If you're in Boston, Barcelona, New York, Chicago, San Francisco or Paris, reach out. We love to connect in person. That's what we do.
And if you have any ideas for topics or things that you'd like us to tackle, send us a note. Always interested to hear what you're interested in and if you enjoyed today's episode, the best way to support us is simple. Share it with a friend or a colleague who cares about the water sector.
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[email protected] Until next time, be well, be safe, and take care.
Sam.
