Acquisitions shake things up in filtration: Cuno, Ahlstrom, Filtration Group positioning for growth.

It's been a very interesting 2004 so far in the filtration industry. Already, a number of mergers and acquisitions have taken place indicating that larger filtration companies are positioning their businesses much more strongly into segments and geographies where they foresee significant growth opportunities.

These acquisitions create new business opportunities for these companies and their suppliers. A few examples include PentaPure by Cuno Inc, the purchase of Hollinee by Ahlstrom FiberComposites, and the merger of Filtrair with Filtration Group Technical Media.

Cuno's purchase of PentaPure is significant in that it commits Cuno strongly into the water filtration business, the company's fastest growing business segment. More than 500 million people in the world do not have what we would consider clean and dependable drinking water.

Governmental institutions around the world have money set aside to bring to their people promising technologies that can make drinking water safer. This problem exists everywhere in the world. There are a number of municipalities in the U.S. that can not use their local water sources due to chemical or biological contamination. And, in many cases, the solutions we use today to fix these problems cause other issues. The EPA has recently started addressing by-products of disinfection. These are chemicals that clean or purify our water systems and leave products in the water that are not necessarily safe in their own right. Cuno also purchased a small specialty activated carbon producer as another add-on company to support the deal. Nonwovens producers should be looking at these types of acquisitions as markers that indications product development opportunities for absorbent filtration products that can meet unmet needs in these segments.

Ahlstrom's purchase of Hollinee indicates, in my opinion, a broadening of its product line to be an all-purpose filtration media supplier. Hollinee is a major supplier of filtration media to the heating, ventilation and air conditioning business in the U.S. This acquisition immediately makes Ahlstrom a major player in this business and, Ahlstrom's strong international sales and distribution system, gives Hollinee the potential to grow significantly beyond the U.S.

Also, in light of Hollinee's significant presence in this market and Ahlstrom's broad filtration media and composites technology capabilities, this partnership has the potential to change the media types used in these applications and create new value for proprietary media in the HVAC filtration media business. This marriage will be interesting to watch.

Another strong competitor in the HVAC business is Filtration Group, which recently acquired European filter media and HVAC filter producer, Filtrair. Filtrair will become part of the Filtration Group Technical Media business. The significance of this move is that it gives Filtration Group a strong manufacturing and marketing base in Europe and instant access to the Chinese market through a joint venture partner included in the deal. This is potentially significant to media suppliers as Filtration Group consumes external filter media for many applications. Assuming they will produce the same products in China as in the U.S. and n Europe, this merger creates an opportunity for approved suppliers to follow their customer into China and to take an initial market position for new growth in this geography.

News at these companies represent just a few of the current changes taking place in the filtration business. It is of interest to many investors because it is a business where single-use products are consumed on a regular basis and have real value as they typically are protecting an expensive piece of equipment.

I have heard this market described as a "razor blade and razor" type market where the razor is relatively unimportant in terms of sales because the razor blade sales create an annuity that can be enjoyed for a long period of time. As participants in the nonwovens filtration business, it is important to understand where the "razor blade" opportunities are so that we can be a part of them for the long term to grow our businesses.

Ed Homonoff writes for Nonwovens Industry quarterly

Ed Homonoff

Homonoff & Associates