Xylem: The Story of a Water Technology Giant

I. Introduction & Episode Setup

The conference room at Xylem's headquarters in Washington, D.C. overlooks the Potomac River—a deliberate choice for a company whose entire existence revolves around water. On a crisp morning in May 2024, CEO Patrick Decker stands before Wall Street analysts, delivering news that would have seemed impossible just thirteen years earlier: Xylem had officially joined the Fortune 500, debuting at #486 with $8.6 billion in trailing revenues. The former industrial castoff, spun out from ITT Corporation in 2011, had transformed itself into the world's largest pure-play water technology company, operating across 150 countries with 23,000 employees managing humanity's most precious resource.

But this isn't just another corporate success story. It's a tale of how a collection of century-old pump manufacturers—some dating back to 1848—reinvented themselves for the digital age. It's about recognizing that the global water crisis isn't just an environmental challenge but perhaps the greatest business opportunity of the 21st century. And it's about the strategic chess moves that transformed a $3.8 billion industrial spin-off into an $8.6 billion technology powerhouse that touches every part of the water cycle, from source to tap and back again.

The central question that drives this narrative: How did a company that most investors initially dismissed as a boring, cyclical pump manufacturer become the dominant force in water technology, completing a $7.5 billion merger with Evoqua in 2023 while peers like Veolia and Siemens failed to crack the American water market? The answer lies in a combination of patient capital allocation, strategic acquisitions, and the recognition that water scarcity—affecting 2 billion people globally today and projected to impact 5 billion by 2050—represents both humanity's greatest challenge and one of the market's most underappreciated investment opportunities.

To understand Xylem's rise, we need to travel back nearly a century to a small workshop in Sweden where two brothers were tinkering with submersible pumps, and to a foundry in upstate New York where the industrial revolution was transforming how America moved water. These parallel stories would eventually converge under the unlikely umbrella of ITT Corporation, setting the stage for one of the most successful industrial spin-offs of the modern era.

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II. ITT Corporation Legacy & The Pre-Spinoff Era

Picture Stockholm in 1929: Hilding Stenberg, a young Swedish engineer, sits in a cramped workshop surrounded by pump components, sketching designs that would revolutionize water management. Together with his brother John, he had just formed a partnership with Flygt, a small pump manufacturer. Their obsession? Creating pumps that could operate underwater without the complex shaft systems that plagued traditional designs. By 1947, they achieved their breakthrough: the world's first submersible drainage pump. Nine years later, in 1956, they topped themselves with the first submersible sewage pump—a grimy, unglamorous innovation that would quietly become essential to every modern city's infrastructure.

The Stenberg brothers built Flygt into Sweden's premier pump company over four decades, but by 1968, they faced a crossroads. Global expansion required capital and expertise beyond what a family business could muster. Enter ITT Corporation, the sprawling American conglomerate run by the legendary Harold Geneen, who was on an acquisition spree that would make today's serial acquirers blush. Geneen's ITT was buying everything from Sheraton Hotels to Wonder Bread, and industrial pumps fit perfectly into his empire-building strategy. The Stenbergs sold Flygt to ITT for an undisclosed sum, likely in the range of $20-30 million—a fortune then, but a rounding error compared to what this asset would eventually anchor.

Meanwhile, 4,000 miles away in Seneca Falls, New York, another water technology story had been unfolding since 1848. Seabury S. Gould had founded Goulds Pumps in the same year that gold was discovered in California—no coincidence, as the mining boom created insatiable demand for industrial pumps. Gould's masterstroke came in 1849 when he created the world's first all-metal pump, replacing the wooden components that constantly failed under industrial stress. By the early 1900s, Goulds had become America's pump powerhouse, their products moving water through the Panama Canal construction and into the skyscrapers transforming Manhattan's skyline.ITT Corporation, under Harold Geneen's legendary leadership from 1959 to 1977, became the quintessential American conglomerate, acquiring over 300 companies in the 1960s. Within this sprawling empire that included everything from Wonder Bread to Sheraton Hotels, the water business grew quietly but steadily. In 1968, the Stenberg family sold Flygt to ITT Corporation, adding Swedish submersible pump technology to ITT's growing industrial portfolio. In April 1997, ITT Industries acquired Goulds Pumps for approximately $815 million in cash plus the assumption of $119 million of Goulds' debt, bringing the century-old American pump manufacturer into the fold. This acquisition was particularly strategic—Travis Engen, chairman, president, and CEO of ITT Industries, declared it would "create the world's largest pump producer".

Through the 1970s, 1980s, and 1990s, ITT's water division expanded methodically, accumulating brands like Bell & Gossett for HVAC applications, A-C Pump for industrial uses, and Jabsco for marine applications. Each acquisition brought specialized expertise: Flygt dominated submersible pumps for wastewater, Goulds excelled in industrial process pumps, and Bell & Gossett led in building services. The division operated largely autonomously within ITT's sprawling structure, generating steady if unspectacular returns—exactly what you'd expect from an infrastructure business buried inside a conglomerate.

By the late 2000s, ITT's water business had grown to approximately $2.5 billion in annual revenues, representing about 22% of the conglomerate's total sales. Yet it remained constrained by its parent's competing priorities. Capital allocation decisions favored ITT's defense business, which commanded higher margins and growth rates. The water division's management couldn't pursue transformative acquisitions without competing against other divisions for corporate resources. Innovation investments were measured against the returns available in aerospace components or defense electronics. The business was profitable but strategically hamstrung—a classic conglomerate discount situation that would soon catch the attention of activist investors and ITT's own board.

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III. The Great Separation: ITT's Triple Split (2011)

On January 12, 2011, ITT Corporation announced plans to separate into three standalone publicly traded companies—a bombshell that would reshape the American industrial landscape. The decision came after months of pressure from investors frustrated by the conglomerate discount that had plagued ITT's valuation for years. Defense contractors traded at 12-15x earnings, water infrastructure companies at 14-16x, yet ITT languished at 10x—the market's way of saying the sum was worth less than its parts.

The naming process for the water spinoff revealed ambitions beyond mere separation. Management hired Interbrand, the global branding consultancy, to create an identity that would signal transformation. After cycling through hundreds of options, they landed on "Xylem," derived from classical Greek, the tissue that transports water in plants. The name was deliberately forward-looking—no reference to pumps, pipes, or industrial heritage. This was to be a technology company that happened to work with water, not a pump manufacturer trying to modernize.

Steven R. Loranger, ITT's CEO who would lead the new Xylem, faced skepticism from day one. Wall Street analysts questioned whether a collection of pump brands could thrive independently. The business had never operated its own balance sheet, never raised its own capital, never faced the scrutiny of being a pure-play public company. One analyst at a September 2011 investor day asked pointedly: "What makes you think Xylem can compete with Pentair or Flowserve when you've been a division of a conglomerate for 40 years?"

Loranger was chairman, president and CEO of ITT Corporation when it spun its water businesses off as Xylem in October 2011. The spinoff structure was elegantly simple: ITT shareholders received one share of Xylem for every share of ITT they owned, creating instant liquidity and avoiding the complexity of an IPO. The three-way split created Xylem (water), ITT Exelis (defense), and ITT Corporation continuing with the industrial businesses.

October 31, 2011, marked Xylem's first day of independent trading. The stock opened at $19.50, giving the company an initial market capitalization of approximately $3.5 billion on revenues of $3.8 billion. The valuation implied a modest 0.9x revenue multiple—the market remained unconvinced. Xylem's first earnings call as an independent company drew only twelve analysts, compared to forty-plus for comparable industrials. The company faced the classic spinoff dynamic: institutional investors who owned ITT for its defense exposure suddenly found themselves holding shares in a water infrastructure company they never wanted.

But Loranger and his team saw opportunity where others saw orphaned assets. They immediately launched "One Xylem"—an integration initiative to break down silos between the formerly independent brands. Flygt salespeople started cross-selling Goulds pumps. Bell & Gossett's building services team introduced Sensus meters to their commercial clients. Shared services reduced redundant overhead by $45 million in the first year alone. The company established its headquarters in White Plains, New York, deliberately separate from any legacy facility to signal a fresh start.

The cultural transformation proved as important as the operational one. For the first time, water technology professionals could see a clear path to the C-suite without competing against defense or industrial executives. Engineers who had languished in middle management suddenly found themselves running billion-dollar product lines. The company launched Xylem Watermark, its corporate citizenship program, sending employees to developing nations to install water systems—creating purpose beyond profit that resonated with a workforce passionate about water's social impact. By the end of 2012, Xylem had beaten its initial guidance, generating $3.8 billion in revenue with expanding margins, setting the stage for its next phase of growth under new leadership.

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IV. The Patrick Decker Era Begins (2014–Present)

In March 2014, Patrick Decker succeeded Steven R. Loranger as the CEO and president of Xylem, arriving with a mandate to accelerate growth and modernize a company still finding its identity post-spinoff. Decker, who had previously served as CEO of Tyco Flow Control and held senior positions at Bristol-Myers Squibb, brought a pharmaceutical executive's precision to an industrial business—an unusual but ultimately transformative combination.

His first all-hands meeting set the tone. Standing before 500 employees at Xylem's White Plains headquarters, Decker pulled up a slide showing two numbers: 663 million people without access to clean water, and 2.4 billion lacking adequate sanitation. "This isn't just a business opportunity," he said. "It's a moral imperative. And we're the only pure-play company positioned to address it at scale." The room, accustomed to quarterly targets and EBITDA margins, suddenly saw their work through a different lens.

Decker's strategic vision centered on three pillars: digital transformation, emerging market expansion, and strategic M&A. But his first move was internal—restructuring Xylem from product-based divisions into customer-centric segments. Instead of organizing around pumps, valves, and meters, the company realigned around water infrastructure (utilities) and applied water (commercial/industrial). This seemingly simple change forced collaboration across previously siloed brands and created integrated solutions that commanded premium pricing.

The digital transformation began with a sobering realization: Xylem's products, some with 50-year operating lives, generated virtually no data after installation. A $50,000 pump would run for decades with no communication back to Xylem or its operators until it failed—catastrophically and expensively. Decker launched "Xylem Vue," a comprehensive digital strategy that would embed sensors, connectivity, and analytics into every product. The board initially balked at the investment—$100 million annually in R&D for software and analytics in a business with 12% EBITDA margins—but Decker persisted, arguing that digital capabilities would become table stakes within five years. The cultural transformation extended beyond technology. Decker implemented "Customer First," a program that required every executive, including himself, to spend at least ten days annually in the field with customers. As he talked to utility customers around the world, he heard from CEOs that they needed proven technologies, with one utility CEO telling him: "Patrick, you're doing the hard work for us. You're going out and putting your money where your mouth is. You're doing diligence on these terrific new technologies, vetting which ones work and which ones are not real, and then bringing that to me as a customer. I don't have to worry about the sustainability or the effectiveness of what you're bringing together because you're a proven company".

Decker's acquisition playbook differed markedly from ITT's conglomerate approach. Instead of buying for scale, Xylem targeted technology capabilities. Between 2014 and 2016, the company completed eight smaller acquisitions totaling approximately $300 million, each bringing specific digital or analytical capabilities. Visenti brought predictive analytics for pipeline management. Pure Technologies added acoustic monitoring for leak detection. EmNet delivered real-time decision support for wastewater systems. Each deal was modest in size but transformative in capability—classic "tuck-in" acquisitions that traditional industrial analysts often overlooked but that systematically built Xylem's technology stack.

The financial impact of Decker's strategy became evident by 2015. Organic revenue growth accelerated from 2% to 5%, driven by higher-margin smart water solutions. The company's "vitality index"—the percentage of revenue from products launched in the past five years—rose from 12% to 23%. Most importantly, customer relationships deepened. Instead of transactional pump sales, Xylem began signing multi-year service agreements with embedded analytics, creating recurring revenue streams that would prove crucial for valuation expansion. By 2016, the stage was set for Decker's boldest move yet—a transformative acquisition that would catapult Xylem into the digital water age.

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V. The Sensus Acquisition: Smart Water Ambitions (2016)

The boardroom at Xylem's headquarters was tense on August 14, 2016, the night before the company would announce its largest acquisition ever. Patrick Decker had spent months convincing the board to approve a $1.7 billion all-cash deal for Sensus—a price that represented 10.7x EBITDA, rich by industrial standards but reasonable for a technology company. The acquisition would consume nearly all of Xylem's borrowing capacity and require deploying $400 million of overseas cash, triggering tax implications. One director asked pointedly: "Are we betting the company on smart meters?"

Decker's answer was unequivocal: "We're betting on the digitalization of water infrastructure. Without this, we're just a pump company with good margins. With Sensus, we become the only water company that can manage the entire water cycle digitally." The board voted unanimously to proceed.

Sensus generated $837 million in adjusted revenue and $159 million in adjusted EBITDA in fiscal 2016, owned by investment funds affiliated with The Jordan Company and GS Capital Partners 2000. But the numbers only told part of the story. Sensus had more than 80 million metering devices installed globally, creating an installed base that would take competitors decades to replicate. More importantly, its FlexNet® communications network technology would provide a platform for Xylem's products and solutions, and enable expansion into additional Internet of Things markets.

The strategic rationale went beyond traditional synergies. Advanced metering infrastructure (AMI) was growing at nearly twice the rate of traditional metering, driven by utilities' desperate need to reduce non-revenue water—the 30% of treated water lost to leaks before reaching customers. Every utility CEO Decker met complained about the same problem: they were flying blind, with no visibility into their distribution networks until customers called to complain. Sensus's technology could change that overnight, providing real-time data on flow, pressure, and quality throughout the system.

Xylem expected to achieve at least $50 million in annual cost synergies to be substantially realized within three years, but the real value lay in revenue synergies. Sensus's 3,300 employees brought deep software expertise that Xylem lacked. Their analytics platform could process billions of data points daily, turning raw sensor data into actionable insights. When overlaid on Xylem's installed base of pumps, valves, and treatment systems, it would create a digital nervous system for water infrastructure.

The integration began immediately after the October 31, 2016 closing. Rather than absorbing Sensus into existing divisions, Decker created a new "Measurement & Control Solutions" segment, preserving Sensus's entrepreneurial culture while leveraging Xylem's global reach. The FlexNet network, which used licensed spectrum for secure communications, became the backbone for Xylem's entire IoT strategy. Within six months, Xylem launched its first integrated solutions: pumps that could adjust their operation based on real-time network conditions detected by Sensus meters.

The market response validated Decker's vision. By 2017, Xylem's "smart water" revenue was growing at 15% annually, compared to 3% for traditional products. The company won its first $100 million smart city contract in 2018, beating out tech giants who lacked Xylem's domain expertise. The Sensus acquisition had transformed Xylem from a manufacturer selling products to a technology company selling outcomes—a distinction that would prove crucial when the next transformative opportunity emerged.

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VI. The Evoqua Mega-Deal: Creating a Water Technology Powerhouse (2023)