[00:00:00] Speaker A: 12,760 liters. That's the estimated water footprint of the smartphone on the other end of your headphones that you're listening to this podcast.
And that's before the data usage even begins.
So if our phones were manufactured in, let's say, Arizona, water wouldn't be out of sight, out of mind.
We might finally recognize water for what it actually is, a critical industrial input into nearly every part of our daily lives, from the factory floor to the dining room table.
It's time to think water.
I am Reece Tisdall, and this is the future of water, which we talk about, all the ways which companies, utilities and people are addressing the challenges and opportunities in water.
This is episode 138, and as always, have a pretty good feeling it's going to be a good one. That's because we're going to be speaking with Bluefield analyst Caroline Vauclaine about water treatment chemicals.
It's a $10 billion market that seemingly flies under the radar, fragmented, quietly consolidating.
And there's a lot more strategically interesting stuff happening than the name chemicals just suggests. It's big.
And Caroline has mapped out about 500 companies in the space.
And what she found might surprise you a little bit.
So I look forward to having her on in just a second. But as you might know before I do that, something caught my eye this past week and I'm going to tell you a little bit about it and what I think and then we'll get to Caroline. But that one thing is Badger Meter has landed what they're calling the largest award in company history and one of the largest AMI contracts in the world.
So we're talking about 1.6 million service connections across Puerto Rico, of all places, for Prasa, the island's water utility. Puerto Rico's been in the news, whether it be for Bad Bunny, super bowl halftime show, but now it's in the news because of meters. And these metering shipments are supposed to start in the second half of 2026.
But why should you care? Why does the Bluefield team care? Well, we've been talking about it one, it's a massive deal and I can tell you that because there's been a lot of slack chat comments internally about what it means. It's a big deal even for badger meter. The US water meter market runs, I think about 6 million meters a year, and Badger holds 25, 30% of that.
So they're shipping around 2 million meters annually.
My numbers are correct. So 1.6 million connection project over three to five years is pretty significant.
That's equal to, I think, as someone said, about eight Orlandos. That's Orlando, Florida. So pretty big deal.
Five years to close this deal. Well, it's taken a while and there are a number of reasons for that. But Badger first bid on this in 2021.
They earned a spot in a head to head competition for a pilot in 2023 24, deploying about 1,000 ultrasonic connections against another finalist. And they won on performance in 2025. So this pilot to award pathway is really increasingly a path for how large utilities are de risking major infrastructure decisions. And it does reward vendors who can prove results in the field and not just on spec sheets. So it goes to demonstration more importantly than just a promise. So for Badger, winning the pilot was really winning the contract.
And then lastly, Puerto Rico is going to be a stress test for Cellular ami. And that's kind of a big deal because PRASA loses nearly 60% of its treated water as non revenue water in some cases. So it's really high. The island's terrain, the hurricane exposure and probably most importantly, chronic underinvestment makes this one of the hardest operating environments, definitely in the U.S. it is after all, part of the U.S.
and if cellular AMI can move the NATO here, it becomes a proof of purchase for other utilities challenged globally, whether they be other island territories, disaster prone regions, but just more importantly, aging systems everywhere. So this is a big deal and look forward to seeing how this plays out. And particularly for Puerto Rico, which, which was even alluded to in the super bowl halftime show. It has infrastructure problems and it's not just the water sector, it's also the power sector. And that's what I'm referring to with Bad Bunny standing atop a telephone pole catching on fire.
They've got real power problems as well. So there needs to be a significant amount of investment and this is a signal that that's happening, at least in water.
So that's what caught my eye this past week.
Now let's get to Chemicals with Caroline Vauclaine and talk about what's happening in that space and this, this sort of behind the scenes segment that is showing real opportunities and competitive activity.
All right, so I'm joined here by Caroline Bucklain. Caroline, how's it going?
[00:06:06] Speaker B: I'm doing well. How are you?
[00:06:07] Speaker A: I'm good. So this is your first time, first podcast or first future water? I'll say that I don't know if it's your first podcast, but where are you these days?
[00:06:18] Speaker B: I'm calling out of Bluefield's Boston office.
[00:06:21] Speaker A: And so the reason I wanted to bring you on is because you've just put out a report on the chemical sector. It's what I think is super interesting.
A lot of detail, lots of data behind it. I think that was a big part of the exercise. I know you and Ethan Edwards in particular have been sort of working through scrubbing these large data sets of chemical suppliers, really looking at supply chain that was the underlying data set, particularly in the U.S.
and so, you know, I'll just throw this out there. You've mapped about 500 companies in the market of varying sizes across the landscape.
500 seems like a lot of chemical companies or suppliers. So what surprised you? And is it as fragmented as it looks on paper?
So, yeah. What's some background on that?
[00:07:18] Speaker B: Yeah, we mapped out around 475 companies, over 1800 facilities across almost every US state. And it really was surprising that the top 10 companies only control around 30% of those facilities. And even more than that, nearly 80% of those 400 and 75 companies operate just one or two facilities. So the market's definitely dominated by those small players.
The vast majority of those small players are also privately owned, making them natural M and A targets. And even after years of consolidation, 22% of all of those water treatment, chemical manufacturing and distribution facilities are owned by those companies with just one or two facilities. So I think we can definitely expect consolidation to continue going forwards.
[00:08:10] Speaker A: Yeah, and that's one of the things I do want to get into. It is a little surprising when I think of the chemical sector, quite honestly. I think of eastern Pennsylvania, Delaware, maybe even Jersey. I think of, you know, the, the U.S. canadian border. There are these chemical companies in the, know the big names, the, the bas of the basfs of the world. That's what I grew up with. You know, we don't make things, we make things better. There used to be their slogan, but, but also Salinas, and then there's us, Alco and others. But let's get to that in a minute. So I'm, I am surprised by that. I think that was really interesting to see what that means and what it means for the water wastewater sector.
Another part of the discussion, at least when we jumped into this was like, why do we want to look at the chemical sector? Because it seems like there's a lot of disruption that's happened, including high prices. Right. And so according to the report, you've got chemical prices up about 36% since 2019. And I don't know Maybe it's not as bad as some other things because of inflation and such, but what's actually driving the price escalation? Is it inflation? Is it supply disruptions something else?
[00:09:33] Speaker B: It's all the above to a certain extent. Inflation's definitely playing a role, like you said, as it has with equipment prices across the water sector.
Supply chain disruptions, though, for some specific water treatment chemicals have definitely been significant in recent years.
Chlorine is one that comes to mind. It's one of the most commonly used disinfectants in water treatment.
The causes of those disruptions range widely from severe weather events like wildfires or hurricanes to labor shortages, specifically shortages of operators certified to transport those hazardous materials.
Alongside that rail, shipping costs have gone up 22%. Trucking costs are up 30%. So those shipping costs are definitely playing a big role.
Another one I was going to mention is competition from other industries for the same chemicals and raw materials.
Price volatility for chemicals like aluminum sulfate, which is a coagulant in water treatment. It's mostly been driven by demand for aluminum from the automotive industry and similarly for phosphoric acid, which is used for crack corrosion control and water treatment. Over 85% of domestic consumption of phosphoric acid is for fertilizer production. So those are driven by these other industries that are often more high value than the water sector. So that further complicates things.
[00:11:00] Speaker A: Yeah, you mentioned other industries. I just remember, and I don't know how true it is.
My memory is fading with age, perhaps.
But I'm only looking back as far as Covid. During COVID everybody was building swimming pools and everybody was, you know, there was a big question about how much chlorine was going to be needed for the residential pool and to, to a lesser extent, the commercial pool sector segment. And what does that mean for competition for those chemicals? Was that problem real? Do you have any sense?
[00:11:33] Speaker B: The chlorine disruption is definitely been significant. I think that residential sector played a big part, but Also during the COVID 19 pandemic, demand for general disinfectants in hospitals and other places is obviously way higher.
And so that created a bit of a squeeze for water utilities as well.
[00:11:56] Speaker A: So I don't think you mentioned this, but.
And then these contracts, I mean, people, they lock in utilities are sort of. I don't know how long the contracts are, but they lock in for time. So are they.
And I don't know what the contracts look like, and maybe they vary widely system by system or utility by utility, but they are locking in and then they're tied to some of these prices. And even if they're fixed over time, there's going to hit a point where there's going to be a spike, I would imagine.
[00:12:27] Speaker B: No, yeah. What we're hearing from utilities is they're moving 20 towards some of those models of having chemical prices being tied to indicators like inflation. But a lot are tied into one to three year contracts that aren't subject to those changes. And so that's also where we've seen a little bit of a slow shift towards incorporating more non chemical treatment methods like UV disinfection and some increased adoption of on site hypochlorite generation systems. But those come with their own risks and large capital investments. So we're also seeing a lot of utilities and rate payers in the end just absorbing these chemical costs.
[00:13:09] Speaker A: And then one thing is that I think you've brought up is shelf life. Right. Shelf life is a problem and I would imagine that influences price as well.
[00:13:20] Speaker B: Totally.
Sodium hypochlorite, one of those disinfectants that's a derivative of chlorine, has a shelf life of only one to four weeks. So utilities are reliant on pretty much constant delivery of those chemicals.
And that's another one of those drivers for on site hypochlorite generation as well.
[00:13:41] Speaker A: Nice. Yeah, I think it's. Yeah, it's super interesting. And one thing, you know, that I think really you've highlighted in this analysis.
All right, so Carolyn, let's change gears a little bit. You know, one of the things that really jumps out in the report, or at least you've highlighted, is M and A activity. We've talked a little bit about fragmentation, but maybe a case in point is Hawkins, who's a significant player, has made about 16 acquisitions over the past five years.
US Alco, which is a company that Ethan Edwards and I have looked at in greater detail, is similarly aggressive.
So what's underlying or maybe fueling all of this MA activity that we're seeing in the chemical space?
[00:14:28] Speaker B: Geographic breadth is a big one. Companies looking to expand their footprint. Both Hawkins and US Alcove targeted the southeast and western US as pretty major growth regions for them.
Being close to customers is something that drives down the transport costs we were talking about earlier and wins contracts that are primarily based on cost.
And I think the other big one for Hawkins as a publicly traded company that's pretty heavily weighted in water treatment as well as private equity backed players like US Alco, Salenis Univar, is the slow growth rate of the treatment chemicals market, we're only seeing it grow at a low single digit growth rate. So for these private equity backed players that are trying to build companies and move towards exits, acquisitions are just a large part of that. Around 20 of the 78 deals that we've tracked since 2020 have been by these larger private equity backed players. So that's something super interesting to track and looking towards some potential exits soon.
[00:15:35] Speaker A: Yeah, I think that makes sense. That's not a surprise. I mean we, I started with Hawkins, but when you look at, yeah, US Alco is a good example. Private equity is looking for growth. And I think as you started off and I think the first question I asked you about what surprised you, the fragmentation is huge. And I think one other area which you also alluded to is geographic proximity. So if transportation costs are up, you had said that. So rail costs are up.
And I kind of think of it like, you know, I remember being in business school and doing case studies on Walmart, right. How did Walmart grow? And really what Walmart did is they just put a pen and a map, right. And then they draw a radius around it and they say what is the geographic distance that we can, that we can cover through this one facility? Chemicals similarly. Right.
Or pipe manufacturers. Right. Particularly when you're moving a lot of product and you've got to get it to certain places and you already mentioned shelf life. You put a pen in a map, you draw a radius and say this is where we can get to within a reasonable amount of time, but also within a reasonable, at a reasonable cost.
And so then you just almost have these circles all over the US and it seems like that's what's happening in the chemical space. A number of these companies are.
The acquisitive ones are looking at it that way. That's one not only how they cover more ground more efficiently and it's ripe for opportunity. Does that make sense to you?
[00:17:16] Speaker B: Yeah, totally.
[00:17:18] Speaker A: I think that's why I like this.
Like I said, fragmentation drives opportunity.
And you know, there's less, you know, big competition in many respects. So within this landscape we've got companies like Chimera and Ecolab, they're buying software, digital monitoring companies.
Why are chemical companies, why are they suddenly. I don't. Suddenly is the right word. Apologies for the horns in the background. If you can hear downtown Boston, maybe they can't get around the snowbank.
But why are these chemical companies suddenly interested in tech? Any sense for that?
[00:17:59] Speaker B: Yeah, we're seeing a lot of these companies building out Remote monitoring capabilities that are intended to optimize dosing and reduce chemical waste and associated chemical costs. So one driver like we've been talking about is those chemical costs, ways to drive those down. For utilities and industrial customers.
Camera, Ecolab and most recently US Alco have made acquisitions to build out their digital capabilities. But Salinas and Ecolab to a certain extent have also built out their digital capabilities organically.
And I think one big thing we're seeing is a lot of these leading chemical companies trying to move away from being solely a commodity supplier towards a service provider provider. And digital capabilities is one way for them to do that.
[00:18:48] Speaker A: Yeah, I think it's, I mean it came up in a conversation with a client yesterday.
I was working on a presentation or presenting to the company and their executive team.
And simply put, right, if you look at particularly the US municipal water wastewater space in 1978, opex and capex was 50 50, right. When you look at these utilities across the board and their spend by 2030 we're looking at close to being 65% opex.
So opex is, you know, its share of the wallet. Utility wallet has grown about 15% since then. So what does that mean? It means there's greater focus on services and there are a number of underlying reasons for that. But it's also part of the reason that the competitive landscape, a number of companies are moving towards services. For one, that's where our dollars are.
Secondly, It's a share of the wallet that it's more easily to get approval. It can't be deferred if it's an operating expense. And that's really where chemicals fall. They there, it's not a chemical piece. Then lastly is yeah, these companies are looking, they're moving horizontally across the value chain. They're trying to add layers to their own onion, so to speak, by adding services. And then I think this is really what you're getting at is it moves companies from being a commodity supplier to something a bit stickier.
Therefore it's harder for these utilities to change. And I think that comes out one. It really shows in the digital space when you're looking at these companies and how they're doing it. All right, so one thing that really jumped out because you gave a presentation to the team just about what's in the report and talking through to the global bluefield team. But it identifies some surprising players when you kind of throw the, the logo matrix up on the wall.
There are companies like Cargill and Morton Salt, that's the one that I really like. Because we all, at least in the US we all know who Morton Salt is. And even a bioethanol producer is another one. Poet, how did a salt company and a corn farmer end up in the water treatment business?
[00:21:27] Speaker B: Yeah, I mean, sodium chloride, also known as table salt, is used as a softener in water treatment and is also an input for on site hypochlorite generation. So that's where we see Cargill, Morton Salt and ICL playing in water treatment.
Carbon dioxide also is a byproduct of ethanol fermentation. Ethanol production is actually the largest source of purified carbon dioxide in the US and in water treatment used for ph and alkalinity adjustment. So Poets, one of those large domestic bioethanol producers that's not necessarily targeting water, but water treatment is a profitable outlet for their byproducts of their main manufacturing operation.
Another category of companies we're seeing in there are some agriculture focused companies like Nutrien. And the water treatment end market might for them end up being also a more reliable revenue stream than the agriculture market. They're selling their phosphates into the water treatment end use as well.
Those are obviously primarily used in fertilizer, but also used for corrosion control and water treatment.
[00:22:42] Speaker A: I think why I like this is from an outsider perspective, right? I think when you see names or we, when we see names like Cargill or particularly Morten salt, I'll stick with that. It's on everybody's table.
What it does, in my mind, it makes the connection to a brand that everybody knows. But then you're highlighting saying actually they play a key role or an important role in the chemical market for things like polishing or input for other chemicals.
I think that's super interesting and I think that's one of the water sector's problems as a whole is it's kind of behind the scenes that no one really thinks about.
And I think that is one of the challenges and I think this is an opportunity. So like anything else, it's like, wow, that really jumped out when you were sharing the research.
Is it a big deal? I don't want to overstate it, quite honestly, but I think it's interesting because, you know, I think of the water sector and my conversations about, you know, like what happens at Thanksgiving dinner, right? You're sitting around the table, you're spending time with family and they're saying what do you do for a living? Or what's happening? And you have to explain it. And they're not really interested in talking about coagulants, quite honestly.
So Kudos to you for getting through this.
It is interesting, I think coagulants, but I don't think much of the world really cares all that much about it. I don't think they want to know. But what they do want to know is what is Morton Salt doing in the water space? Because they know that. Or separately, what is Amazon doing? Or what's the role of IBM or how does. I mean, pick your big brand, Coca Cola. How do they manage water?
It just makes the connection. So don't want to overstate it. So look, Caroline, this. I think the report is super interesting.
I think there's a lot of sort of good competitive analysis in there. You've sized the market overall.
Did I? What is the total size? We say it's around $10 billion.
[00:25:03] Speaker B: Yeah, we had it around 10 billion.
[00:25:05] Speaker A: Yeah. So we've sized the market over time and what this means. So there's some really good insights there. And I think what we've talked about is kind of what's underlying some of these numbers, whether it be disruption, whether it be fuel price or transportation prices. Should I say fuel prices impacted as well?
Anything else I'm missing?
[00:25:25] Speaker B: I don't think so.
[00:25:27] Speaker A: All right, well, thanks for jumping on early in the morning.
Sometimes I'm a morning person. For those who don't know, I get on the calls with Dave McGimpsey for that podcast for the Water Values podcast early in the morning. Sometimes I feel bad asking people, hey, can you jump on this? But you said you're a morning person, so I really appreciate it. And thanks for not only putting together this report, I'm sure a lot of people would be interested in it. It is in our Competitive Strategies service.
That's where that report is living and housed. And yeah, thanks for the insights on this podcast. And from there, I will set you free on a Friday so you can hopefully enjoy what seems to be a nice weekend in Boston for the first time in a while.
[00:26:21] Speaker B: Thank you.
[00:26:22] Speaker A: All right, Caroline, take it easy.
All right, so thanks to Caroline for jumping on.
That was great. Like I said, I really like the report.
It's also in a new Bluefield template that I really like, so it makes it easier to read.
So if you're interested in that, you can always reach out to us@water expertsluefieldresearch for that, plus any other topics you want us to tackle or discuss.
As always, before we sign off, I want to recognize the team that makes these conversations possible. Mike Gaylor, Ryan Sullivan, Kelly Talbot, Steph Haldock. Without them, this podcast not only wouldn't make it past my desk, but I wouldn't be driving them crazy. But I think we've got a pretty good routine now where they're willing to deal with me and my podcast every two weeks. So thanks to them, if you're in Boston, Barcelona, New York, Chicago, San Francisco, Paris, we'd love to meet you in person. That's where we are almost all of the time. But we were meeting people in London last week. I will be in Charlotte at umc.
We will be at Swan in.
I forgot where Swan is. Tampa.
We have been in a number of different conferences in Europe, so we are available and always want to talk. And like I said, we also meet with boards, executive teams. I did that yesterday morning and then I had a client in the office yesterday afternoon. It's always a conversation. I'm a big fan of that.
I love the podcast.
I love Zoom because it makes life easier. But I also probably more than anything, like meeting people in person because that's where the action is.
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Ra.
