U.S. Filter Gulps Another Rival
U.S. Filter Corp., relentlessly pursuing an acquisition binge to be the global leader in municipal and industrial water treatment, agreed Monday to buy the industrial water treatment unit of Wheelabrator Technologies Inc. for $385 million in cash.
The purchase would be only the latest in a flurry of takeovers by U.S. Filter, a Palm Desert-based provider of water treatment machinery and services that has bought more than 40 similar companies since 1990, including several this year.
Few industries are less glamorous than water treatment, but the company and its stockholders probably don’t care. U.S. Filter’s growth strategy, combined with rising water treatment needs worldwide, have produced gushing sales and profit gains for the company.
The deal with Hampton, N.H.-based Wheelabrator would swell U.S. Filter’s annual revenue to $2 billion, up from just $63 million four years ago. U.S. Filter now operates in Egypt, Singapore, Mexico, Germany and a dozen other countries, and its industrial customers include Unocal Corp., Florida Power & Light Co. and LSI Logic Corp.
With about 4,000 employees worldwide, U.S. Filter has 170 sales and service offices and more than 50 manufacturing and equipment-overhaul plants, including a major facility in Whittier.
For its fiscal year ended March 31, U.S. Filter’s revenue was $473 million, up 74% from the prior year, and its profit more than doubled to $20.3 million.
U.S. Filter’s stock price, meanwhile, has tripled in the last 18 months, and it surged an additional 15% after the announcement Monday. The stock jumped $3.875 a share to $30.50 in New York Stock Exchange trading.
The architect of U.S. Filter’s growth is Chief Executive Richard J. Heckmann, 52, a former stock brokerage executive in the Palm Springs area who led an investor group that seized control of the then-ailing firm in 1990.
From the start, Heckmann vowed to make U.S. Filter a “one-stop shop” for water treatment by using internal growth and acquisitions, arguing that competition in the water treatment industry was so fragmented among hundreds of rivals that it was ripe for one large, diversified player.
And Heckmann said Monday that U.S. Filter is not about to stop buying companies in order to simply digest what it has already acquired.
“We are just getting going,” he said in a telephone interview. “We have believed for a long time that there is no excuse for there not being one water company out there” that dominates, he said.
“You can tell me who the biggest steel company is, who the biggest auto company is,” Heckmann said. “There ought to be a household name in water too.”
But even if Heckmann makes U.S. Filter a familiar name, there’s a vast difference between successfully running a $2-billion company and a $60-million one. Analysts cautioned that Heckmann must prove he’s as adept at managing a giant corporation as he is at building one.
“Managing a far-flung enterprise like that is a challenge,” said Jeffrey Musser, who follows U.S. Filter for the brokerage firm Raymond James & Associates in St. Petersburg, Fla. “Every time you get bigger, there’s always the question of whether you can continue to be successful.”
Heckmann said he’s not concerned. With each purchase, he said, U.S. Filter is not only acquiring assets but also seasoned executives who “improve our management team rather than stretch it.”
And financially, Heckmann has not let U.S. Filter overextend itself. Many of its acquisitions were made with stock, not cash, and so far its debt load is manageable, analysts said. They also said Heckmann’s timing is right.
Although many people think of water treatment only in terms of treating sewage or contaminated drinking water, there also is growing industrial demand for treating water for manufacturing and environmental reasons.
That demand, combined with conventional municipal water treatment needs, represents a market that’s growing between 8% and 15% a year, analysts said.
Utilities--always under scrutiny for compliance with environmental laws--are naturally a major user of treatment services before they recycle water back into lakes, rivers and oceans.
But the corn sweetener industry also requires treated water for converting corn to the sweetener used in soda pop. Electronics and pharmaceutical firms also need ultra-pure water for manufacturing their goods and cleaning their plants.
For example, South Korean electronics giant Samsung recently hired U.S. Filter to install waste water treatment gear at a new Samsung plant in Tijuana that will build television picture tubes.
As Musser noted, “nobody uses water out of the tap in their manufacturing operations anymore.”
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Water Treatment Boom
Benefiting from a strong demand for water treatment services and a spree of acquisitions, U.S. Filter Corp.’s stock price has climbed steadily. Weekly closes since mid-December:
Monday: $30.50
Sources: Bloomberg Business News, Tradeline
Researched by JENNIFER OLDHAM / Los Angeles Times
