Niche Focus Plus IIOW is the Most Profitable Option for Filter Companies

There are 100,000 filtration sub-niches with distinct value propositions and at least $1 million in annual sales. The most successful filtration companies are identifying each sub-niche where they can achieve 40% market share and 30% EBITDA. These sub-niches guide the local salesman. Ten of these sub-niches can be combined and successfully pursued with the help of product, OEM, and regional managers. Let’s call these niches: Each averages $10 million in market size, $4 million in revenues and $1.2 million in EBITA. With the right selection of 100 niches, a company can achieve EBITDA of $120 million/year.

To put this in perspective, industrial companies average less than 10% EBITDA and the flow control sector less than 14%. So, our example company with annual revenues of $400 million will generate filtration EBITDA greater than all but a few companies worldwide. (1)

There are hundreds of facts and factors determining the value propositions in each of the 100,000 niches. Furthermore, these facts and factors keep changing with new technology developments, regulations, and competitors.

At first blush it seems impossibly expensive to undertake this detailed analysis. But IIOW provides the answer. Most of the facts and factors are applicable to thousands of niches, so it is just a case of making them available.

For every filter sub-niche the same hierarchy of territories exists. It starts with 80 countries and sub regions and then expands to states and provinces and then individual purchasers.

In each territory the amount of iron ore being mined, the GPM of secondary wastewater treatment, the number of semiconductor chips produced and the amount of pharmaceutical ISO 4 cleanroom space in m3 are relevant for many sub-niche analyses.

The wisdom of niche experts is necessary. But here again there are resources which can shed light on many filter sub-niches.

Arcelor Mittal bought aging steel companies throughout the world and then centralized decision making on products such as filters for all their plants. BASF in Germany is making decisions for chemical plants throughout the world. Suez and Veolia are making filter decisions for hundreds of water and wastewater municipalities. So, there are niche experts at user, consulting, and systems companies.

Another factor which simplifies the task is that some facts and factors only change to a minor extent.

It has been a long while since the U.S. created any new states and more than 220 years since the Louisiana Purchase.

How can a company sort through all these subniches, pick the right ones, and then pursue them? It is a daunting task. There are discussion about artificial intelligence being the solution which can manage the worlds digital information. The problem is that it can only analyze what is on the internet. So how does a filter company keep pursuing all the best sub-niches?

The answer is the Industrial Internet of Wisdom (IIOW). IIOT plus guidance from niche experts can now provide what AI only promises.

The organized gathering of information even to include pre-internet days is valuable. McIlvaine created knowledge networks in 1974. They were utilized for decades by the EPA, other governments, end users and suppliers.

Surprising as it may seem the R&D results from 30 years ago may be the most valuable facts and factors in a certain niche. Coal gasification filtration was extensively studied at that time but not recently. The new blue hydrogen option makes this old data highly useful.

This organized pursuit of the niches provides local sales as well as management with reliable enough data to become the foundation of business strategy.

There are several filtration companies who are demonstrating the benefits of niche pursuit. IDEX with 30% EBITDA carefully selects niches around valves, pumps and many other flow control products including filters. It is pursuing only a few filtration markets which meet its criteria. IDEX Health & Science, LLC is a leader in life science fluidics, microfluidics, and optics. It supplies small filters used with instruments.

The IDEX strategy has been to buy successful niche companies in high-growth markets. Each retains its identity.

W.L. Gore and Porvair also focus on niche markets. However, the foundation of each company is a unique filtration media: Variations of the media are then developed to serve specific niches. Porvair has developed sintered metal powder and metal fiber filters to deal with high temperature, particulate and corrosive gases. Their products are in demand for blue hydrogen. The organized niche approach is particularly valuable for companies such as Gore and Porvair.

Donaldson dominates a niche for pre-assembled small dust collectors but avoided the high revenues and lower margins associated with large systems.

ITW has been aggressively moving toward highly profitable niches. Over the last seven years it has sold under-performing companies and has been rewarded with a big stock price gain. In the most recent quarter, EBITDA was $4.5 billion on revenue of $16 billion (28%). It is involved in a number of small filter niches such as Filtertek who has specialized valve/filter combinations for the medical device industry.

Another success factor has been to take advantage of the fact that most filter revenues come from replacements. Niche forecasting of replacements is much easier than for new systems.

There is no need to wait for AI. High market share and EBITDA can be achieved now with a niche strategy supported by IIOW. (1) Most Profitable Market Program published by the McIlvaine Company

Pleat

By Len LaPorta Managing Director, Wiley Bros.-Aintree Capital, LLC

Len LaPorta is a managing director of Investment Banking at Wiley Bros.-Aintree Capital, LLC – a 75-year-old firm, located in Nashville, TN, focused on investment brokerage and underwriting municipal bonds for utility districts in the state of Tennessee. Len brings to the Firm experience in crossborder M&A transactions between USA and Europe, advises business owners on sell-side and buy-side transactions, capital advisory, and valuations. Len is a graduate of the U.S. Naval Academy with MBA from Boston College and a veteran of the U.S. Navy. He is also a member of INDA’s non-woven Technical Advisory Board. llaporta@wileybros. com or (615) 782-4107.