Behind Our Investment: cleanwater1

By Rob Ospalik, Partner, and Rebecca (Becca) Schlagenhauf, Principal

Rob Ospalik

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From day one, cleanwater1 really had all the hallmarks of being a great investment for Baird Capital’s Global Private Equity team. We saw a well-established founder-led business, one that has a family of leading brands, and that was seeking a growth partner; that checks a lot of boxes in terms of how we like to partner with businesses, where we can add a lot of value and where we’ve had success.

For cleanwater1, we quickly identified many growth opportunities, including geographic expansion, both domestically and transatlantically. The business had grown historically through some acquisition growth, and obviously, we’ve continued that with VeloDyne.

In the water industry, technology solutions must be grounded in science and proven. We can’t afford to ‘experiment’ when it comes to our world’s critical water supply. Cleanwater1, however, offers technology solutions that are not only proven but also address a growing set of water quality challenges faced by utilities and the industry at large.

Becca Schlagenhauf

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One thing to note is we had been looking to invest in the water space for a while. There are several macro tailwinds that are benefitting the water space that have made it very attractive to us:

• Water scarcity
• Water quality
• Aging infrastructure
• Population migration and reshoring (putting pressure on the water utility system)
• Labor cost/availability
• Supply chain resiliency

With these themes in mind, we felt confident that we could help cleantwater1 with their key mission, which is to tackle the most critical challenges that face the water and wastewater industry today.

Moreover, our investment in cleanwater1 presented a unique opportunity to partner with CEO David Stanton. This strategic partnership, combined with the acquisition of VeloDyne and the addition of Paul Plache to the team, has brought exceptional leaders within the water industry on board. Their expertise and vision will undoubtedly drive the company’s growth and success in the future.

David Stanton

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I found cleanwater1 through its founder / former CEO, Andy Seidel. He called me and clued me in on his impending retirement. He identified how much opportunity was ahead of the business and how they needed a leader to continue the legacy. He noted that Baird Capital was coming in as the lead investor and focused on doing the right things to support the continued growth of the business. I did a lot of diligence, both on the business and Baird Capital, and gained a lot of conviction on both the company and Baird.

By the time we had to commit to this decision with both the business and Baird [Capital], I felt comfortable and confident that this was the right next move.

Rob Ospalik

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How lucky are we to be able to partner with great leaders in great companies?

David Stanton

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While the business is doing exceptionally well, the tailwinds Becca referenced are real for our company. We have record backlog across the business, and it’s growing faster than sales.

It’s an interesting phenomenon where there’s plenty of project work and plenty of clients who need our services, but there are not enough contractors, and the permits and bureaucracy get in the way of the business’s speed a little bit. But even with that dynamic we’re growing at – or even above – our expectations across the board with our solutions.

Baird Capital has been great to work with. From day one, they were very involved in learning the business and rolling up their sleeves to make sure they understand how things add up, and all the nomenclature and terminology.

Becca Schlagenhauf

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Before talking about cleanwater1 being a “family of brands,” I think we should have Paul set the scene on VeloDyne.

Paul Plache

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You’re going to think this is going way too far back, but VeloDyne started with me owing my dad some money; I went to work for his company, also in the water industry.  I planned on being there for six months and ended up spending twenty years building my career; I literally held of position in the company except for accountant (by choice).  In 2003 I had an idea for a new technology, a patent issued, and that’s what really set the business in motion.  This led to my wife and I starting the business in 2005.

Rob Ospalik

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I don’t think many people outside the industry know how deep competitors cleanwater1 and VeloDyne were before the acquisition; what would you say drew you together?

Paul Plache

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It’s a great question because I didn’t see it coming. What I saw ahead of VeloDyne was a great future in being the acquirers, not the acquired.

It’s like the proverbial, “You can’t see the forest for the trees.” It took meeting David [Stanton], talking to Andy [Seidel], and even writing my rationalization for the deal so that I could truly see the “forest.” Once I did, there was no looking back.  I knew this partnership was a great fit, right for our stakeholders, and most importantly right for our people.

David Stanton

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It’s cheesy, but together we are stronger. Plain and simple. Paul and I both believe you need to have a strong voice in the industry that people will listen to and the more clout you have behind that authority you have behind that strength and in the company, the more you’re going to be heard. This will lead to positive change in the marketplace, which is what it’s all about.

Paul Plache

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Exactly. Simply seeing the strength of our sales channels and becoming a member of the cleanwater1 “family of brands” gave us a clear pathway to expanding and strengthening our sales channels on the water quality side.

David Stanton

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I think it’s also important to note that this wasn’t a closed-door transaction in a dark room with a cold group of bankers. This was transparent and open, and because of that, we knew the two cultures would fit well long before we closed the deal, and I think that took much risk out of the opportunity. That is how we would love to work with future owners who might want to sell and see their company flourish. We aim to be a platform that enables them to keep their brand name, and we can provide opportunities to their people.

Rob Ospalik

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I love that you’re calling that out. Anyone who knows Baird or Baird Capital understands the importance of our company culture and how we build our strategy around it.

VeloDyne and cleanwater1 underscore the concept that Becca, myself, and the rest of the Private Equity team have that the water industry is a mission-driven organization. People care. People are “in it” because they care and want to protect the environment. So, when you have people that come together and can do that? They’re speaking the same language. There was no world in which Baird Capital was going to come in and chop in half the organization, it’s not how we build great companies; instead we focus on the “2 + 2 equals 5,” as Paul likes to say, we now have a strong group in which people can grow and do different things all within this career that they’ve chosen as a calling for themselves.

And then, you see the pictures of these fierce competitors sharing each other’s swag; we’re talking VeloDyne folks wearing cleanwater1 swag and vice versa… it’s fantastic.

David Stanton

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You said it before, but I can’t emphasize enough that the purpose-driven part of the company is closest to the customer because when you work in water utilities or with the environment, you feel a great sense of purpose in everything you do.

Becca Schlagenhauf

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It’s true, and it’s actually one of the pillars of our Sustainability Thesis.

From the early days of cleanwater1 (formerly UGSI), we knew that M&A was going to be part of the story. So, having the VeloDyne deal come over the finish line—with their great reputation, leadership, and more—really ticks all the boxes.

Sustainability is a very broad bucket. What it means for Baird Capital right now is really focusing on the water space in the US, as well as energy transition and the circular economy. We have two examples of those portfolio companies in the U.K.: ecube and STR. It’s safe to say we remain bullish about the prospects within sustainability, and the water and wastewater industry more specifically. It’s an exciting time to be in this space.

David Stanton

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This is indeed exciting and even more so important; the most critical applications resulting from climate change will be “water first.” People are finally paying attention for the first time since 1972 (passage of the Clean Water Act).

However, it’s been quiet since then; no one else has been saying that water is essential or important enough to earmark a significant portion of infrastructure spending. But I think people are starting to get the message that water is part of the primary symptom of climate change. Carbon is the problem and water is the manifestation of the climate change it drives. Water was a major component of the Infrastructure Act passed in Washington, which essentially funded $50 billion worth of water projects as we need to refresh and technologically advance all the investment which is now nearing 40-50 years old.

People outside the industry don’t understand that water touches everything. Shaolei Ren, a researcher at the University of California, Riverside, has been studying the “secret water footprint” of AI Models. I’m reading directly from their report, but Ren’s team estimates ChatGPT uses 500 milliliters of water (about a 16-ounce water bottle) every time you ask it a series of between five to 50 prompts or questions. For how much public scrutiny has surrounded this program I don’t know how many people are actually stopping to think about the environmental impact—which is significant.

Rob Ospalik

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That is both fascinating and terrifying. David, let’s stick with you – what’s next for cleanwater1?

David Stanton

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For cleanwater1, we have a five-year plan to bring more brands like VeloDyne to market. I’d feel confident in saying that we’d like to make 1-2 more acquisitions to build out the portfolio. Second, we want to continue to invest in our sales channel to ensure that we have a bigger and more robust sales channel as we grow.

Currently, we remain very US-geography and heavily utility-focused. However, I can see us increasing activity in other select industries and, if possible, growing to become an international platform.

Rob Ospalik

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Paul, how about you – what’s next for VeloDyne?

Paul Plache

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The good news is that my answer mirrors everything that David just said. Even though we’re still VeloDyne, we really are one unified company under cleanwater1. I’m focusing on our product development, such as the next-generation polymer blending system. I’m also exploring different ways to approach smaller sizes of the Microclor^® system and how we develop the Residual Control Systems (RCS) technology and product line.

Second, you must approach the industrial market differently, and we view this as a massive opportunity for VeloDyne (previously untapped) which we are actively targeting under the umbrella of cleanwater1.

Finally, David and I just got back from IFAT in Munich, and we were practically overwhelmed by the opportunity in the room, not only for cleanwater1, but really the entire water industry.

Becca Schlagenhauf

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As Baird Capital, we echo the sense of opportunities on the horizon. We’d absolutely be interested in adding another business to the cleanwater1 family of brands or making another platform investment in the water space.

David Stanton

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I’ll add another thing: It is pleasantly surprising how helpful Baird has been to cleanwater1 and our people. One of the first things I identified as CEO was a need for consistent reporting across our various acquired brands. The Baird [Capital] team jumped in and helped us put it in a reporting platform that works beautifully. The benefit was that we didn’t have to go through a complete consolidation of all the ERP systems to get basic daily reporting. This might sound simple, but it wasn’t. From the day we acquired VeloDyne, this new system made it possible for us not to go in and change the ERP on day one.

This is just one example of the back-office support that Baird has done, and it’s been so good for us.

Paul Plache

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I’ll add my own Baird plug: When you’re being acquired, you go through a rollercoaster of emotions. We got to know David and the cleanwater1 family, but peers warned me about working with a private equity group that could come swooping in. It quickly became apparent that this would be a different and more positive experience. It’s the best of both worlds. I left feeling this uncompromising integrity in Baird Capital; they did everything they said they would do.  I cannot tell you how impressive the board is, and working with the Baird [Capital] team has been a highly rewarding experience, something I was looking forward to at this stage in my career, and now I have it.

Rob Ospalik

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 …that was the only unprompted part of today’s conversation, so I’m a little speechless. Thanks, both. This partnership means a lot to us.

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