May 30, 2018
Kurita Takes a Stake in Fracta, Inc., a U.S. Startup, and Makes the Company Its Subsidiary
- Accelerating the expansion of digital business through collaborations with a water-related company boasting leading-edge AI/ML technologies -
Kurita Water Industries Ltd. (Head Office: Nakano-ku, Tokyo; President: Michiya Kadota; hereinafter "Kurita") is pleased to announce that it has executed an investment agreement with Fracta, Inc. (Delaware, the United States; CEO: Takashi Kato), the holding company of Fracta (Redwood City, California, the United States; CEO: Takashi Kato). Fracta serves the water utility industry in the United States with a software service of predicting water main degradations by applying artificial intelligence (AI) and machine learning (ML). The amount of this investment is approx. 37 million US dollars (approx. 4,000 million yen). 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 (the "Kurita Group").
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.
Fracta is a Silicon Valley startup established in 2015 by Mr. Takashi Kato, a serial entrepreneur renowned for his robotics venture and other practical accomplishments, as well as Mr. Lars Stenstedt. This company attracts attention as a pioneer in the digital business in the water-related market of the United States. It provides a software service of predicting the conditions (deterioration due to aging) of underground water mains and sections (areas) needing replacement, quickly with a high level of accuracy, by applying big data analysis technologies based on AI and ML.
In the United States, 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 United States, there are 240,000 accidents per year of breaks and leaks caused by aging of water utility mains. This has been recognized as a social issue, and it is predicted that $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 approx. $2 billion per year.
The software service developed by Fracta 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 analyze 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 optimizes the frequency of replacement, allowing significant reduction in the amount of capital investment and maintenance cost.
Kurita's investment in Fracta Inc. will permit Fracta to enhance its sales system for business expansion and development system for strengthening functions of the software. It thus accelerates its market deployment all over the United States, aiming to achieve growth of the business into one with sales of more than $30 million, in five years.
Kurita positions 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, Inc., Kurita will achieve Fracta's leading-edge technologies and expertise in AI and ML and apply them 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 realize further 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 Maximize Value Proposition 2022 ("MVP-22"), a medium-term management plan launched in April 2018, the Kurita Group positions "solving issues related to water resources," "realizing 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 realize innovations that use state-of-the-art technologies, thereby contributing to solving social issues related to water and the environment.
[Comments from Mr. Takashi Kato, CEO of Fracta]
"We are honored that Kurita Water Industries, a leading global company specialized 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.
While maintenance and efficient management of water utility infrastructure attract attention as a social issue in the United States 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."
[Comments from Mr. Michiya Kadota, President of Kurita Water Industries Ltd.]
"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.
In addition, we will utilize Fracta as a hub for gathering Silicon Valley knowledge and technologies. By doing so, we will continue to powerfully promote open innovations with startups and external organizations."
Profile of Fracta, Inc. (Holding company)
|Company name||Fracta, Inc.|
|Location||Delaware, the United States|
|Capital stock||7,402 thousand US dollars (As of December 31, 2017)|
|President||Takashi Kato, CEO|
Profile of Fracta (Operating company)
|Location||California, the United States|
|Representative||Takashi Kato, CEO|
|Business||Software service of predicting water main degradations based on artificial intelligence (AI) and machine learning (ML)|
|Number of employees||12 (As of May 30, 2018)|