Aqua Alliance Inc. Business Information, Profile, and History

History of Aqua Alliance Inc.

Formerly known as Air & Water Technologies Corporation, Aqua Alliance Inc. (AAI) is a leading provider of water, wastewater, and hazardous waste services. Among other activities, the company operates, maintains, and manages water and wastewater treatment facilities; designs and constructs water and wastewater facilities; and provides for the remediation of hazardous waste. AAI's customers are mainly governmental, including municipalities and state and federal agencies; the company is at the forefront of the emerging trend toward the privatization of municipal water and wastewater systems. AAI operates and manages the water and wastewater systems for the Commonwealth of Puerto Rico. Among the other water treatment facilities it operates are those in Brockton and Lynn, Massachusetts, as well as in Alamogordo, New Mexico. It manages wastewater treatment facilities in Oklahoma City; Cranston, Rhode Island; Taunton, Massachusetts; West Haven, Connecticut; and Kenner, Louisiana. A public company, Aqua Alliance is an 83 percent owned subsidiary of Vivendi, a French conglomerate which is the largest water company in the world.

Origins in the Late 1980s

R-C Acquisitions, Inc., was formed in 1987 by Eckardt C. Beck with the help of Odyssey Partners, Allen & Company Incorporated, and some affiliates of First Chicago Corporation as a means of acquiring Research-Cottrell, Inc., an engineering and construction company, through a leveraged buyout. After the acquisition, the company retained the name Research-Cottrell but changed its focus to environmental treatment. The following year, it acquired Zecco, Inc., a Northboro, Massachusetts, firm specializing in hazardous waste cleanup. Shortly afterward, Zecco was merged with another of Research-Cottrell's subsidiaries, Metcalf & Eddy, Inc.--which dealt with water and sewage treatment and industrial waste problems&mdashø form Metcalf & Eddy Companies, Inc. (MECI).

Toward the end of 1988, Research-Cottrell made yet another acquisition through another of its subsidiaries, Power Applications & Manufacturing Company (PAMCO), Inc. This time the prize was Waukesha Engine Servicenter and Waukesha Engine Servicenter of Arizona--collectively known as WESI--companies involved in the sale of generating sets, pumping equipment, and compressors. WESI had customers in many different areas, including wastewater treatment and the gas and oil industry.

In June 1989 Research-Cottrell changed its name to Air & Water Technologies Corporation (AWT). AWT continued its program of acquisitions in the environmental control field, with the same month's purchase--through the Metcalf & Eddy subsidiary--of various assets of the hazardous waste firms H.G. Anderson Equipment Corporation and Anderson Testing Company, Inc. A few months later, again through Metcalf & Eddy, Air & Water Technologies acquired certain assets of YWC (formerly known as York Wastewater Consultants) Inc.'s operation and maintenance service division and also the outstanding common stock of YWC Northeast. The YWC companies provided wastewater treatment services to cities in the northeastern United States.

Early 1990s Difficulties

AWT acquisitions in 1990 included Petrolgroup, Inc., and Regenerative Environmental Equipment Company, Inc. (REECO). The latter company, based in Morris Plains, New Jersey, produced incineration technology used in the destruction of volatile organic compounds (VOCs) and other toxic substances found in polluted air. The REECO acquisition was part of the AWT's strategy to take advantage of the stricter air pollution controls put into effect by the passage of the 1990 Clean Air Act Amendments. The company also entered a joint venture in plastic recycling with Hammers Plastic Recycling of Iowa Falls, Iowa. As part of the project, AWT bought a ten percent share in Hammers. That same year, the France-based Compagnie Generale des Eaux (CGE)--the world's largest water company, providing water for 33 million customers throughout Europe--purchased 16 percent of AWT for a price of $100 million.

Also in 1990, Air & Water Technologies sued the Puerto Rican Aqueduct and Sewer Authority, or PRASA, for $31 million in delinquent payments. PRASA, however, fought back. A government affiliate of PRASA performed an audit of the disputed contract, questioning 'up to $39,988,200 of billings for possible technical violations of equipment procurement procedures.' Though the U.S. Court of Appeals for the First Circuit dismissed PRASA's appeal, PRASA asked the U.S. Supreme Court to review that dismissal, and their request was granted.

Despite troubles with PRASA and a few other projects, at the beginning of the 1990s it appeared that Air & Water Technologies was ready to put most of its expansion expenditures behind it and concentrate on gaining profitable clients. By this time the company comprised three major subsidiaries: Research-Cottrell, Metcalf & Eddy, and Residuals Management. Research-Cottrell focused on air and thermal pollution issues and provided services in the areas of regulatory assistance, consulting, permitting, and research and development. Metcalf & Eddy served as the water and solid waste department of AWT. Like Research-Cottrell, it provided regulatory assistance, consulting, and permitting services to its clients. Metcalf & Eddy also performed waste minimization, sludge management, solid waste management, as well as groundwater and hazardous waste remediation. Residuals Management produced recycled plastic products from industrial and consumer sources and handled asbestos and lead removal, disposal, and abatement.

In addition to working through its three major subsidiaries, AWT at this time served its customers through five regional centers in the United States--Central, East, New England, South, and West--and a separate division devoted to its clients in the federal government. In 1991, approximately 44 percent of the AWT's revenues came from contracts with federal, state, and municipal government agencies. The company's international division provided services in 44 countries in Europe, Asia, the Middle East, and Canada. It saw particular growth in the European market during the early 1990s due to the fall of communist governments in Eastern Europe. Also during the early 1990s, CGE gradually increased its stake in AWT to 24.5 percent.

Mid-1990s and Beyond

By 1994 AWT was floundering. It was in severe financial straits because it remained burdened by the hefty debt load Beck had taken on in the 1987 LBO. Beck had counted on customers snapping up pollution control systems in order to comply with new government regulations, but many utilities and firms came up with cheaper ways to reach compliance, such as shutting down high-polluting plants, switching to cleaner coal, or purchasing emissions allowances. AWT's foray into the asbestos abatement business had also turned into a mistake as asbestos removal proved to be a crowded, low margin sector. After failing to find a buyer, AWT liquidated Residuals Management in mid-1994, taking a $35 million charge to do so. Overall, from 1991 to 1993, AWT lost a total of $41.4 million.

In June 1994, with no end in sight to the company's red ink, AWT was rescued by CGE, which injected an additional $65 million into the ailing firm, increasing its stake to 40 percent and gaining the right to appoint a new management team. Claudio Elia, who was the head of CGE's U.S. holding company, replaced Beck as chairman and CEO of AWT. Along with the increased stake, the transaction also involved the transfer to AWT of a CGE subsidiary, Houston-based Professional Services Group, Inc. (PSG), the largest manager of water and wastewater treatment facilities in the United States. Metcalf & Eddy was involved in this sector in a much smaller way, and its operations in this area were merged into PSG. To this time, the privatization of municipal water and wastewater systems had been growing at a rather slow pace, but CGE was convinced that it was poised to take off.

Air & Water Technologies showed major improvement in 1995, when it posted an operating gain of $16.8 million (but a net loss of $8 million), compared to an operating loss of $182.5 million for the previous year (when it had a net loss of $261.8 million). The company continued to be dogged by difficulties, however. In April 1996 Elia was one of about a dozen U.S. senior corporate executives who accompanied U.S. Commerce Secretary Ron Brown on a trade mission to the Balkans which ended in a fatal plane crash. After CGE executives took over management of AWT on an interim basis, Robert B. Sheh was brought in as the new chairman and CEO. Sheh had been CEO of International Technology Corp. In December 1996 the CEO of Professional Services Group resigned, a few months after being placed on paid leave while AWT investigated allegations that PSG officials made improper payments to members of the Houston City Council and others in connection with the possible privatization of Houston's water system. The AWT probe uncovered some questionable financial transactions, and the company turned this information over to the U.S. Department of Justice, which had already initiated its own investigation and was continuing to look into the matter as of late 1999.

Sheh was unable to turn the company's fortunes around, and AWT was near bankruptcy by September 1997. Once again, CGE came to the rescue. The French conglomerate reached an agreement with AWT on a recapitalization plan whereby it invested approximately $200 million to increase its stake to 83 percent. This enabled Air & Water Technologies to finally bring its debt level under control; long-term debt was reduced from $307.8 million at the end of fiscal 1997 to $119.4 million the following year. AWT's board asked for Sheh's resignation so two CGE executives could take charge. Named to the chairmanship was William Kriegel, who was also chairman and CEO of Sithe Energies Inc., a New York-based independent power producer which was also a majority-owned subsidiary of CGE, as well as chairman and CEO of CGE's U.S. holding company, Anjou International Co. The new president and CEO was Thierry Mallet, who had helped turn around Sociedad Mediterranea de Aguas, CGE's water and wastewater unit in Spain.

The new leadership immediately embarked on an ambitious program of reorganization and streamlining, the highlight of which was the focusing of the company on water. To this end, AWT announced in December 1997 that it would sell off Research-Cottrell, its original company. In 1998 AWT sold a major part of the business, then completed the divestment in January 1999 with the sale of REECO. These moves left the company with a much narrower focus, with water, wastewater, and hazardous waste services comprising the bulk of operations. The year 1998 was also marked by name changes. Compagnie Generale des Eaux was transformed into Vivendi, while Air & Water Technologies adopted the name Aqua Alliance Inc. (AAI) in October. According to a company document, the new name was selected because 'it clearly states the company's two greatest strengths: its dedication to the water business and the relationship formed with its clients.' Also in October 1998, AAI moved its headquarters from Branchburg, New Jersey, to Wakefield, Massachusetts; and it began merging its two main units, Metcalf & Eddy and Professional Services Group, as part of a restructuring of operations into four regions operating from Chicago, Atlanta, Wakefield, and San Diego.

Principal Subsidiaries: AWT Air & Water Technologies Canada, Limited; AWT Capital, Inc.; Chesapeake Sunrise Marketing Corporation; EnviroSolutions, LLC; Falcon Associates, Inc.; Flex-Kleen Corp.; Lerman Design Corp.; M & E Auburn, Inc.; M & E II, Inc.; M & E Pacific, Inc.; M & E Services, Inc.; MEPAC Services, Inc.; Merscot Inc.; Merscot II, Inc.; Metcalf & Eddy, Inc.; Metcalf & Eddy of Canada Ltd.; Metcalf & Eddy de Puerto Rico, Inc.; Metcalf & Eddy International, Inc.; Metcalf & Eddy Management, P.C.; Metcalf & Eddy of Massachusetts, Inc.; Metcalf & Eddy of Michigan, Inc.; Metcalf & Eddy of New York, Inc.; Metcalf & Eddy of Ohio, Inc.; Metcalf & Eddy Services, Inc.; Metcalf & Eddy Technologies, Inc.; PIECO, Inc.; Power Application & Mfg. Co.; PQ Energy, Inc.; Production Rentals, Inc.; Professional Services Group, Inc.; PSG of Puerto Rico, Inc.; Rental Tools, Inc.; Thermal Transfer Corporation; Utility Services Group Inc.; 2815869 Canada, Inc.; Vee-Six, Inc.

Principal Competitors: American Water Works Company, Inc.; Bechtel Group, Inc.; United Water Resources; United States Filter Corporation; Waste Management, Inc.

Chronology

• Key Dates:

• 1987: R-C Acquisitions, Inc. is formed, acquires Research-Cottrell, Inc., and adopts the Research-Cottrell name.
• 1989: Company changes its name to Air & Water Technologies Corporation (AWT).
• 1990: Compagnie Generale des Eaux (CGE) purchases a 16 percent stake in AWT for $100 million.
• 1994: CGE ups its stake in AWT to 40 percent.
• 1996: CEO Claudio Elia is killed in the Balkans trade mission plane crash, which also took the life of U.S. Commerce Secretary Ron Brown; Robert B. Sheh is brought in as the new chairman and CEO.
• 1997: AWT nears bankruptcy and is rescued by CGE, which increases its stake to 83 percent.
• 1998: CGE changes its name to Vivendi; AWT divests major portion of Research-Cottrell; company changes its name to Aqua Alliance Inc. (AAI); headquarters moves to Massachusetts and four operating regions are established: Chicago, Atlanta, Wakefield, and San Diego.
• 1999: Divestment of Research-Cottrell is completed.