Kurita takes a stake in Fracta, making the company its subsidiary

Kurita Water Industries Ltd. recently announced that it has executed an investment agreement with Fracta, Inc., based in Delaware, United States (U.S.), the holding company of Fracta, a company based in California, U.S. Fracta serves the water utility industry in the U.S. with a software service of predicting water main degradations by applying artificial intelligence (AI) and machine learning (ML).

The amount invested was around US$37 million. Kurita will hold a majority of the outstanding shares of Fracta, Inc. through a subscription for newly-issued shares under the investment agreement, as well as private sale transactions between existing shareholders. As a result of these transactions, Fracta, Inc. will be Kurita’s consolidated subsidiary. In addition, from 2020 up to 2024, Kurita will acquire all of the remaining outstanding shares and make Fracta, Inc. into a wholly-owned subsidiary of Kurita or its affiliates.

This investment will be made as a part of strategic investments aimed at achieving “creation of new business and the promotion of innovation,” which has been set by the Kurita Group as one of priority measures under its medium-term management plan. Kurita will combine its water treatment technologies and expertise, which it has accumulated, with leading-edge AI/ML technologies of Fracta, thereby creating new value and contributing to solving water resource problems and other social issues.

A Silicon Valley start-up established in 2015 by Takashi Kato, a serial entrepreneur renowned for his robotics venture and other practical accomplishments, as well as Lars Stenstedt, Fracta attracts attention as a pioneer in digital business in the water market in the U.S. It provides a software service of predicting the conditions of underground water mains and sections needing replacement, quickly and with a high level of accuracy by applying big data analysis technologies based on AI and ML.

In the U.S., water main degradations are generally identified in a simple manner based on the age of service of the pipes, by checking the equipment visually on site, or by applying the similar method. However, these methods are not accurate enough to ensure appropriate management and replacement of water mains, which has been a problem. In the U.S., there are 240,000 accidents a year of breaks and leaks caused by aging of water utility mains. This has been recognised as a social issue, and it is predicted that US$1 trillion will be needed to replace water mains by 2050. In the field of software services of predicting water main degradations, the potential market size is estimated to be around US$2 billion per year.

The software service Fracta developed combines accumulated data of past water main failures with those on pipe materials and age as factors for deterioration and geographical data such as soil, climate, and population. An algorithm is applied to analyse correlations of more than 1,000 data items and output the probability of failure and appropriate times to replace water mains. This enables efficient management of water utility infrastructure and optimises the frequency of replacement, allowing significant reduction in the amount of capital investment and maintenance cost.

Kurita’s investment will permit Fracta to enhance its sales system for business expansion and development system for strengthening functions of the software. It will also thus accelerate its market deployment all over the U.S., aiming to achieve growth of the business into one with sales of more than US$30 million in five years.

Kurita has positioned IoT/AI as one of important infrastructures for providing water treatment solutions to customers and promotes innovations of its business models and processes accordingly. Through its investment in Fracta, Kurita will be able to apply Fracta’s leading-edge technologies and expertise in AI and ML to its water treatment technologies and services, thereby creating and expanding a new digital business that applies IoT/AI in the field of water and the environment.

Fracta’s service of predicting water main degradations not only provides customers with economic value, such as reductions in the capital investment and maintenance cost, but also contributes to the security and wealth of people’s lives by solving water resource problems. Working together with this company, Kurita will further realise evolution of the software service based on AI/ ML and aim to operate a business that will lead to solutions of water resource problems faced by countries all over the world in the future.

Under the Maximise Value Proposition 2022, a medium-term management plan launched in April 2018, the Kurita Group positions “solving issues related to water resources,” “realising sustainable energy use,” “reducing waste,” and “advancing industrial production technologies” as social issues to focus on and commits itself to creating shared value with society. Kurita will continue to promote collaborative creation with various partners and realise innovations that use state-of-the-art technologies, thereby contributing to solving social issues related to water and the environment.

“We are honoured that Kurita Water Industries, a leading global company specialising in water treatment, has highly valued Fracta’s talent and vision. We are excited about our future collaborations. We are sure that changes we will make in near future with our cutting-edge technologies based on AI and ML will drastically change the management method of water mains. Our technology will also bring a big change to an equipment-intensive industry, such as the water utility business,” Kato, CEO of Fracta, said. “While maintenance and efficient management of water utility infrastructure attract attention as a social issue in the U.S. and other countries, Fracta would like to think what issues we should solve, what forms of products and services are needed to solve the issues, and develop such products and services together with Kurita Water Industries. We will thus forge ahead with acceleration of business expansion and creation of new business domains.”

“We are delighted and very excited to be given this opportunity to invest in Fracta, Inc. Through the investment, we would like to help the company grow and contribute to enhancing its corporate value. We expect that AI/ ML technologies held by Fracta will greatly evolve water treatment solutions. We believe that we will be able to operate a digital business that will create unprecedented, ‘unique value,’ by combining Fracta’s technologies with our unique products and services and thereby creating a synergy with the company,” Michiya Kadota, president of Kurita Water Industries, added. “In addition, we will utilise Fracta as a hub for gathering Silicon Valley knowledge and technologies. By doing so, we will continue to powerfully promote open innovations with start-ups and external organisations.”