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Is Xylem’s $1.7 Billion Sensus Deal a Game Changer for the Water Industry?

Sensus smart meterWater technology company Xylem this week announced it will buy smart meter manufacturer Sensus for $1.7 billion — a deal that could be a game changer for the water industry.

The all-cash purchase, which follows several recent high-profile tech industry acquisitions, will boost Xylem’s smart meter, network technologies and data analytics services for the water industry, and move the Xylem into the electric and gas sector as well.

The companies expect the deal to close in the fourth quarter.

To date, the water sector has been a largely untapped market for smart meter makers, says Frost & Sullivan principal consultant Farah Saeed. The Xylem-Sensus deal could change that.

“The electric market is fully saturated; the untapped opportunity exists in the water sector,” Saeed said in an interview.

And, as increasing water scarcity and regulations force companies to closely monitor their water use, the demand for smart meters will likely grow.

The Sensus acquisition “will accelerate our ability to bring systems intelligence solutions to customers across the water and energy industries,” said Xylem president and CEO Patrick Decker in a statement. “As a combined company, we expect Xylem to grow faster and be more profitable.”

In addition to its smart water sector business, Sensus generates about 24 percent of its revenues from sales to electric and gas utilities. The projected growth rate of smart metering, particularly advanced metering infrastructure or AMI, is even higher in these sectors than in water.

Research firm Markets and Markets projects that the global AMI market will grow from $10 billion in 2015 to $19.5 billion in 2020.

Xylem says Sensus “is well positioned to capture that growth with its network-enabled solutions.”

“The deal is a game changer for the industry because it continues a trend towards greater consolidation and integrated partners for customers,” said Frost & Sullivan senior industry analyst Seth Cutler. “Xylem can be a flexible partner through smaller distinct projects, or larger schemes that engage different parts of the company. It also provides Xylem with the ability to be a consulting partner to customers and the ability to design the most efficient solutions based on a range of products and services, rather than a company pushing a central product.

Cutler points to recent deals such as Honeywell acquiring Elster Metering for $5 billion and Veolia’s integrated urban services — these include water and wastewater management, waste and recycling services and waste-to-energy — as examples of further integration in the industry.

Integrated water, electric and gas is the exception, not the norm; Cutler says practical and business barriers hinder integration.

“At a broader lever, however, this does have implications on looking at the city as a customer, especially if communications networks become consolidated,” he said. “Sensus’ FlexNet platform could support other communications needs of cities as infrastructure becomes more interconnected, and this would avoid unnecessary platform duplication.”

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