‘Why investing in water is so difficult to get right (but this is how you do it)’ with Reinhard Hübner, CEO, SKion Water, Germany

[00:00:00] Piers Clark: Welcome to the Exec Exchange 15-minute podcast, in which a leader from the water sector shares a story to inspire, inform, and educate other water sector leaders from around the globe.
[00:00:10] Piers Clark: My name is Piers Clark and my guest today is Reinhard Hübner, the Chief Executive for SKion Water based in Germany. It is arguably one of the most successful and most focused investment funds in the world and he's going to correct me on that word in a minute I suspect.
[00:00:28] Piers Clark: Reinhard its wonderful to have you with us.
[00:00:31] Reinhard Hübner: Good morning, Piers. It's a great honor to be on the podcast. I've learned a lot from what previous execs contributed on challenges utilities face, and challenges the industry faces.
[00:00:42] Piers Clark: That's very nice of you to say. Now, as you know from listening to previous ones, we want to hear about who you are first. So tell me a bit about your journey as to what you did before you were in this current role.
[00:00:55] Reinhard Hübner: I did all kinds of manufacturing in industries like chemicals, pharma, automotive and logistics starting with a mathematical background in optimization of production networks. Some moment I got parachuted into a big wastewater treatment plant and I was fascinated and shocked by what I saw because the place was not in good shape but it's treated what 4 million people flushed on the toilets every day. I got fascinated by the fact that we have this hidden world that makes the world work.
[00:01:21] Reinhard Hübner: And remember this is where our path crossed. At the end also when you were at Thames, as a supplier with Michael and I was at Thames doing leakage.
[00:01:29] Reinhard Hübner: And then I got pretty randomly headhunted into SKion in 2010. No idea how the headhunter found me 'cause I never worked in the German water sector only abroad in the US and Australia and in the UK. And I got this opportunity to try something entrepreneurial and I figured, okay. This is a once in a lifetime opportunity to try something completely different that is not what I ever intended to become.
[00:01:51] Reinhard Hübner: I was thinking I would be COO of a large company with beautiful factories or something like that. And then I started with a white sheet of paper at SKion, and there was no SKion Water back then.
[00:02:01] Piers Clark: And that's the bit that I'd love to come to because the beautiful part of that story you've just told is that you actually fell in love with the industry because you got your hands dirty in it. You just got into it and saw the problems and then this opportunity comes out of the blue to join SKion Water. And when you made that statement, it sounded like SKion Water already existed, but it didn't. SKion Water was an idea.
[00:02:22] Piers Clark: Now for people who don't know anything about SKion Water, describe what it is today and then take us back to 2010 and the sort of exam question that you were given as what you could build.
[00:02:32] Reinhard Hübner: Today we are a treatment solution provider across the world for freshwater and wastewater, municipal and industrial, with roughly 5,000 people and roughly 1.5 billion Euro turnover. We did 50 to 60 acquisitions to get to where we are and when we started, there was an empty sheet of paper that said something in water technology and that was the idea of Ms. Klatten.
[00:02:52] Reinhard Hübner: She had done a lot of work to educate herself and to lay a foundation and then we got the mandate to try and we started from nothing.
[00:03:00] Piers Clark: I described you at the beginning as an investment fund, and that's because of the acquisitions you've done and because you behave like a private equity and or venture capital investor, you have that ethos. But of course, that's not quite right 'cause you are now a, as you just described, a corporate and operating player.
[00:03:17] Piers Clark: Now you've mentioned another character, another actor in this play, Ms. Klatten. Let's go back to Ms. Klatten, who's she?
[00:03:24] Reinhard Hübner: She's first and foremost an entrepreneur. She's part of the Quandt-Klatten family and inherited a big stake in BMW but she's a full-blooded entrepreneur and she's proven this a few times.
[00:03:35] Reinhard Hübner: Actually when I was headhunted, initially I thought, this is not possible. This vision in 2010 to do something in water and try. I had seen other people who thought, water is the next oil or the next gold or crap like that and I was really skeptical whether this is real or whether this is just a crazy idea of a rich person. And she was very convincing in knowing that it's hard, that it's a slow sector, that it's not so open to innovation but she felt that some entrepreneurial push could benefit the sector and that it could also long term be a good investment idea.
[00:04:07] Reinhard Hübner: I was more skeptical than she was and still she hired me, right? And the first investment failed and still she didn't fire me.
[00:04:14] Reinhard Hübner: And we are not a fund, we are really a family office set up with long-term investment strategy. The family holds investments for decades or even longer. And so I got the chance to also build something with a long term strategy where there is no strategy that you buy it and 4, 5, 6 years later it has to be sold again but we really do a comprehensive buy and build.
[00:04:34] Piers Clark: It is an incredible story because you've got your unique and very special set of skills. You are an entrepreneur. You're very operationally focused. You've got Ms. Klatten with her vision and expertise, but recognizing the limits and the fact she needed someone like you to come on board.
[00:04:48] Piers Clark: Then you go on this journey starting in 2010, 15 years later, you've got a business that is 1.5 billion in turnover and 5,000 people. And that's from the acquisition of 50 plus different acquisitions, some quite big, some quite small. And then you threw away just that little point there that the first acquisition you did didn't work.
[00:05:10] Piers Clark: And you took that learning and plowed it forward. And this is the bit that I'd like to get to talk to today because so many investors come into water, and I get that you are not a fund, but you do behave like an investment fund in that if I'm an entrepreneur dealing in a tech company and I've got a great idea, I can come to SKion Water and you can either invest in me or support me on that journey, or you direct me to some of the funds that you invest in.
[00:05:34] Piers Clark: So why is it so difficult for investors in water to get it right?
[00:05:39] Reinhard Hübner: I think we need to differentiate between the maturity levels of the companies, but the common denominator is a highly fragmented industry and it's highly fragmented on the customer side. Germany has 5,000 utilities, the US has 50,000 utilities, every industrial company almost on this earth they don't centrally procure water technology but plant managers take the procurement decisions unless it's a major corporate with a major strategy that standardizes.
[00:06:04] Reinhard Hübner: And that fragmentation is also reflected in the supplier landscape. You have endless small suppliers, endless small water tech companies, and this is difficult to navigate because the sales effort to go to market is really one of the big obstacles for any company when you have something that is a technology.
[00:06:23] Reinhard Hübner: So we started with the technology type approach, innovative technologies. This was a startup like setup and it was mission impossible because you had to build such a big team to get the technical piece right, and then such a big team to sell and you could never reach breakeven.
[00:06:39] Reinhard Hübner: And I could give you the math, but that's maybe for another time, on why these young companies really, really struggle unless they have a partner or unless they have the magic bullet of something that is 30- 40% better than what's out there.
[00:06:51] Reinhard Hübner: There's very few technologies that really roll up the market, and then if you don't roll up the market, you might still have a good technology, but you can't bring it to the market in a fragmented industry as a small company.
[00:07:00] Reinhard Hübner: So we went from startup venture type investing to buying established companies with customer access. And then we can tie technologies into this landscape because we have the coverage of the patch, and we have the customer relationships and the trust of the customer where the customer will not require 20 iterations before trying something new, but they will say, solve my problem, and we can solve the problem with something new that's better than our competition because we are a full service provider.
[00:07:25] Reinhard Hübner: And then we went geographic, because every country functions differently in the water market in terms of how the customers procure. It's different in every country.
[00:07:33] Piers Clark: The story you've just told there is on one level, incredibly depressing. If I'm an early-stage startup and I've got something that's quite good, but I haven't got the size, how do I make it, what do I do?
[00:07:44] Reinhard Hübner: Don't try to do everything alone. Find good partners who are in the industry already, who have the customer access, who can help you de-risk the technology, who can help you find, not just customer one and two. Customer 3, 4, 5, 6, 7, 8, 9, 10 are the tough ones. The first one you always find.
[00:07:59] Reinhard Hübner: You need partners unless you have the magic thing. There is a few magic things. If you look at NEREDA as an example, Royal Husking, however, was also not a startup but they brought a pretty magic technology to the market and they scaled it, but they also had the customer access, the relationships and the trust.
[00:08:15] Reinhard Hübner: There is startups that made it on the UV side. Trojan made it, for example, Cambi made it on the sludge disintegration. This is all established companies now, so it is possible, but if you ask them, it took a long, long time.
[00:08:28] Piers Clark: I was about to say Cambi is a great success. It was one of those overnight successes just took 25 years to get there. It's incredible.
[00:08:36] Piers Clark: Alright, but what about investors into those early-stage companies? If people like you aren't going to invest in them, how do they find good investors?
[00:08:43] Reinhard Hübner: There's by now really a network and ecosystem of good funds that invest into early-stage companies. We invested in Emerald because we like to work with them, but there's many other ones and they help you and they have the network that you don't have.
[00:08:57] Reinhard Hübner: And they also drive you into a strategy where they find partners for you and then potentially an industrial strategic investor who brings this value add to the table.
[00:09:07] Reinhard Hübner: You need these partners who really want to bring it to the market and don't just want to put it on their website and then do nothing. And these partners exist. They're hard to find. It's possible and it's gotten much better compared to when we started in 2010, this ecosystem did not exist.
[00:09:22] Piers Clark: Tell me about one of the great successes and also one of the regrets of the last 15 years.
[00:09:28] Reinhard Hübner: We always tried to learn from not repeating the same mistake. Always we adopted our strategy when something went wrong. The regrets I have probably is not to act earlier when something is not going in the right direction. And most of the time it's also around people.
[00:09:45] Reinhard Hübner: It's sometimes a set up where it will never work, but sometimes it's also finding the right people and making it work on the people side because at the end, we are a people industry. And if we get the people part right, then the company will work because it's just driven by the people. And one of our biggest successes, or the biggest success actually, has been that we retain people.
[00:10:04] Reinhard Hübner: Whenever we buy companies also often off of their owners who have no successor, there's a plan that they stay and continue to work with us so that we can slowly integrate and not do a culture change that then uproot the company and people start leaving. And when the owner stays, the people stay if it's a good company with a good relationship between the owners and his employees, or her employees.
[00:10:25] Reinhard Hübner: And we really never lost those key people. Also, the key management people that we liked when we bought the company, we never lost them. They stay. And that's the biggest success because that drives the underlying success of the business to be financially and customer-wise successful.
[00:10:40] Piers Clark: Reinhardt. I love that answer. I love that answer of regret is I didn't move fast enough when I should have done, and that I retained the people. And you know, I thought what you were going to say was in terms of, you know, my great success was the recent deal that you did, which if anyone goes onto the SKion Water website, they'll be able to see that you have just done a nine-figure deal. And actually for most investors,
[00:11:03] Reinhard Hübner: It's 10, Piers. Billions is 10 with nine zeroes, one with nine zeroes.
[00:11:08] Piers Clark: This is why no accountant ever lets me near the numbers. But there's the point, you bought a business for a sum, much less than that, and then sold part of the business for an order of magnitude or more than you bought it for, because you'd added enormous value. And that for an investor would normally be the sort of badge of honor that they'd wear. But you didn't go there, you went, we retain our staff which is an incredible reflection of you and your style.
[00:11:33] Reinhard Hübner: That transaction is an outcome of the people part because at the end this is an amazing team that maneuvered itself to the quality leader in ultra-pure water for semiconductor. And we invested also heavily into that team and what it had in mind. We built a big research center in Switzerland where you can do crazy research, where you can detect particles, parts per quadrillion with machines that cost 2 to 3 million as analytical equipment where we can deposit on the wafer and check what actually sticks on the wafer versus what's in the water because for the customer it matters what's on the wafer and not what's in the water.
[00:12:09] Reinhard Hübner: And we built the plants that produce the cleanest water you can have on Earth. And we also build lots of clean room assembly shops where we can assemble in our own clean rooms as skids. So we invested heavily financially into that business, but it was all driven by the same people, plus new people of course, it grew substantially who were there when we privatized when we were in 2016. We gave them the freedom to invest into their future, into people, into lab, into research, into some technologies and into this assembly network. And they made it happen.
[00:12:41] Piers Clark: I've known you for 20 years. And I love that you've just given all of the kudos to the teams there. But I'm gonna embarrass you by making the point that unlike most investment firms, what you've done in the last 10 years is whenever it goes wrong, Reinhard rolls his sleeves up, gets involved, steps in to be the Interim Chief Executive. You engage on supplier issues. You lead by example and it is an incredible reflection, and I personally believe that this is why SKion Water has been so incredibly successful is your analytical mind, your manufacturing background, and the fact that you definitely put wind under the wings of the staff that work for you, and then you roll your sleeves up at a time that matters.
[00:13:28] Piers Clark: It's been awesome to watch what you've done in the last 20 years, and it's why I wanted you on this podcast.
[00:13:33] Reinhard Hübner: There's a few things that in hindsight I smile when I think about it. Ovivo was a desktop research exercise when we wanted to get into the US market.
[00:13:42] Piers Clark: And its Ovivo being the company that you bought and have sold for billions.
[00:13:46] Reinhard Hübner: Yeah, we did our research. We got asked somebody external to do research. We agreed Ovivo would be an ideal target. We went to Canada to meet the CEO and the chairman of Ovivo and talked about collaboration. At the end of the meeting, we told them we would actually like to privatize you because they were listed and within a few months we got the privatization done. And the bankers won't like that, but we even privatized the listed company without an investment bank.
[00:14:07] Reinhard Hübner: So it was a crazy journey and we pulled something off there when we bought it. It helped to have a good partner with CDPQ, who were a shareholder and supported this transaction.
[00:14:17] Piers Clark: There's so much we could talk about. So many stories that we could go into around your various portfolio companies, but unfortunately we are running out of time.
[00:14:27] Piers Clark: I'm going to finish by asking you to go back those 20 years. It was 2005 I think, when we first met around that time. And you weren't at SKion Water. You were just dipping your toe into the water sector.
[00:14:38] Piers Clark: What advice would you give yourself now if you could go back and speak to a young Reinhardt?
[00:14:43] Reinhard Hübner: Funny enough, I always went with a flow. And I'm grateful for my flow. And when I see young people obsessed with career planning, try to find a flow where you feel happy. I was very lucky that my flow turned out so well.
[00:14:55] Reinhard Hübner: And my children, I will tell, learn something real that cannot be taken over by AI. And the water industry will not be taken over by AI. It's a proper industry with real hardware problems, where people have to solve problems on site. So, maybe the water industry's not too bad.
[00:15:10] Piers Clark: You have been listening to the Exec Exchange with me Piers Clark, and my guest today has been Reinhard Hübner from SKion Water in Germany. I hope you can join us next time. Thank you.