Mcilvaine Insights

No. 103   May 3, 2019

Bottoms Up Collaboration Around Each Major Flow and Treat Prospect

Flow and treat companies have successfully implemented a strategy of independent action by each subsidiary or division. However, even the most successful can benefit from a Most Profitable Market program which identifies the potential profits to be made from each major prospect and allows bottoms up collaboration among divisions to pursue these targets. IDEX is one of the most successful corporations to pursue the independence strategy. If it can benefit from the new approach so can all the other suppliers.

IDEX fluid and metering technologies division has sales approaching $1 billion and a 30% EBITA. However, its market share in pumps, valves, and flow control is small compared to some competitors. So one question is whether it can build market share and still maintain the high EBITA.  Each division operates independently with very little joint activity.  However, there are changes in purchasing patterns which need to be considered.  With remote monitoring and data analytics the corporate office can evaluate each valve, pump, and instrument in each plant and make purchasing decisions based on prolific cost of ownership information.

In addition large system suppliers such as Mitsubishi Heavy Industries (MHI) are furnishing complete systems and then remotely operating them. The MHI subsidiary MHPS can be injecting magnesium oxide into its furnaces  using OBL pumps and injecting ammonia into its catalytic reduction systems using Corken pumps and compressors. It might be using Liquid Controls flow measurement and Pulsafeeder metering pumps. It could be pumping slurries with Warren Rupp diaphragm pumps. MHI could be monitoring all these components from its center in the Philippines or the one in Florida.

Once the customers and system suppliers have this comprehensive performance information, flow and treat companies  will find that they need to match this knowledge with their own.  It then becomes desirable for each division to collaborate.  In order not to reduce the independent activity of each division, the collaboration can be bottoms up. The local sales people can share or not share information with their peers in the other divisions.  Each will have a specific sales  target for each major purchaser.

Most IDEX divisions differ in terms of the specific products which they produce.  There is also some regional difference.  Richter has great insights into the European chemical industry given its history and location. There are more than 16 distinct operations in  IDEX Fluid and Metering Technologies.

Japan has a number of large end users for flow control instrumentation, pumps, and valves.  Some of the world’s largest OEMs are Japanese based. The following chart shows the Total Available Market (TAM) for instrumentation, pumps, and valves for some of the major Japanese purchasers. It also shows the Serviceable Available Market (SAM)for each IDEX entity.  The chart does not contain the actual forecasts but does show enough detail to illustrate the following points. They are:

·       The major OEMS are large prospects for many products.

·       Most of the companies are purchasing enough IDEX products to warrant a targeted marketing effort.

·       The potential is spread among multiple divisions.

·       Single purchase orders to OEMS are likely to include multiple products such as made by IDEX.

·       The potential is large enough to warrant better understanding of the specific processes and product requirements.

·       This understanding can lead to better products and even higher margins.

·       The IDEX market share in Asia is low. So a focused approach on specific targets is a good way to build share.

* not actual forecasts but just representative values for demonstration

The TAM is $2.7 billion. The IDEX SAM is $17.5 million. This is a share well under 1%. Many of the end users and all the EPCs are utilizing some flow control products in countries other than Japan. Sumitomo purchased the Foster Wheeler coal fired boiler operations in the U.S. It is also building wastewater treatment plants in many countries.  MHI operates worldwide. It has had success in the Indian coal fired power market.  Toray has multiple plants in the U.S. These companies prefer to deal with international suppliers who can address their global needs. A bottoms up collaborative program which can provide global service for each of these major purchasers will be an advantage.

The Most Profitable Market  program to identify each major purchaser is explained at www.mcilvainecompany.com

 The program for instrumentation suppliers is covered at N031 Industrial IOT and Remote O&M.
 
The program for pump suppliers is covered in N019 Pumps World Market.

N028 Industrial Valves: World Market explains the program for Valve Suppliers.

Bob McIlvaine can answer your questions at rmcilvaine@mcilvainecompany.com 847 784 0012 ext. 122.

Flow and Treat Acquisition Choices Shaped by Most Profitable Market Program

A new program available from Mcilvaine Company will help acquirers make the best  choices and then maximize the value of these acquisitions.

There are  continuing acquisitions of flow and treat suppliers.  Some acquirers such as the Filtration Group and IDEX have grown and prospered as a result of their acquisitions. Others such as GE have not. Picking the right candidates is the first and most important step.  Proper integration is equally important. It is difficult to leverage the benefits available from the acquiring company with the independence needed to succeed.

Some companies such as Emerson have been focused on flow but not treat.  They have acquired valve and automation companies but avoided the product and chemical companies. Danaher has acquired companies across the spectrum including Hach for flow measurement, Chemtreat for treatment chemicals, and Pall for filtration.

Treat system companies  are not constrained by manufacturing capability.  Filters and scrubbers are typically constructed of ¼ in. plate and can be sub contracted. Valve and pump companies have moved away from owning their own foundries but provide other fabrication capabilities in their own facilities. Therefore the location of manufacturing facilities becomes a factor in decision making.

Anticipation of future trends is one of the more difficult determinations.  Few people anticipated the steep drop in oil prices in the past  or the massive new planned investments by Chevron and Exxon Mobil in U.S. shale. The  single use biopharmaceutical system market for T-cell transfer immunotherapy has grown more rapidly than had been commonly anticipated.

Some future trends are negative. A company with a specific flue gas conditioning agent to make precipitators work better was making huge profits at the time it was acquired. Within a year the precipitator companies introduced  a mechanical solution completely eliminating the demand for the chemical. Thorough understanding of the industries, processes, and products is advantageous in anticipating future trends.

The flow and treat industry has not been nearly as innovative as some other industries such as semiconductors or pharmaceuticals. It can be argued that there is not the same potential.  On the other hand a few individuals completely changed the world economy by developing commercial horizontal hydraulic fracturing. Fifty years ago the conversion of flue gas and liquids to a toothpaste type foam was achieved. The mass transfer from gas to liquid is 1000 times greater than with packed towers. However, the subsequent separation of the liquid and gas was not fully perfected and the pursuit quickly canceled.  There was a short period in the 19666-1974 period where R&D budgets were almost unlimited as U.S. power companies tried to perfect flue gas desulfurization. However the industry was soon content with a solution even if it was not ideal. Less R&D  money has been spent on FGD in the four decades subsequently than was spent in the first eight years of the program.

Clearly the horizontal fracturing development has had a huge return on investment.  How do the flow and treat companies find these highly profitable opportunities? One is answer is a new program from McIlvaine

The McIlvaine Most Profitable Market Program provides acquirers with

·       A valuable tool to select acquisition candidates

·       A program to integrate the new acquisition painlessly

·       A growth platform for both organic and acquired companies

A valuable tool to select acquisition candidates

The Most Profitable Market (MPM)  Program provides forecasts of the gross margins and EBITA which can be achieved with each product in each industry and in each location. This is based on present and future lower total cost of ownership. This lower cost can be leveraged to increase margins. Estimates of future EBITA using this approach are superior to estimates based on historical performance.

A new product such as automation can lower the cost of ownership for the product being automated. A purchase to match a pump product with the accompanying valves provides a package approach which will likely result in lower costs for the customer.  The program eliminates silos between industries, technologies and products and helps identify profitable R&D investments.

A program to integrate the new acquisition painlessly

MPM forecasts the specific purchase opportunity at each major prospect.  This provides a foundation for bottoms-up collaboration. The newly acquired company local sales representatives can share information with peers in other divisions and pursue each opportunity. This collaboration potential can also be an acquisition criteria.  A candidate whose products are well received by important prospects is attractive.

A growth platform for both organic and acquired companies

The MPM program is based on understanding processes and technologies and developing new and better products. The resulting higher margin opportunities create funding for increased R&D and further innovation. With shared process and technology knowledge the acquired company can improve its products and  increase EBITA faster.

More information on the Most Profitable Market Program is found at www.mcilvainecompany.com

Overview

Specific flow and treat forecasts are now available for specific products for each of  thousands of purchasers. This information can then be the basis of an effective sales effort. This Issue shows the potential for a multi division corporation such as IDEX. The value in an acquisition effort is also chronicled. Here are some other perspectives.

Fifty Companies buy Half the Electrostatic Precipitator Systems and Parts

Forecasting Valve Purchases by each Major Owner

Sales Program focused on the 50,000 top CFT Prospects

Forecasting Pump Purchases by Companies More Important than by Countries

Eight Indian based Companies will Spend more than $1 billion for Valves in 2019

Intel will Spend $2.6 billion for Combust, Flow and Treat Products in 2019

3700 Large Purchasers of Bags and Cartridges

Market Forecasting by Type of Purchaser

Oil, Gas, Refining Service Tracks the Activities of the Large Purchasers

Power Plant Providers are Major Purchasers of Combust, Flow and Treat Products

Forecasts of Pump Purchases for each of the 6730 Largest Customers

Bottoms up Collaboration around Each Major Flow and Treat Prospect

Flow and Treat Acquisition choices shaped by Most Profitable Market Program