The potential of Environmental, Social Governance plays like water treatment is starting to be realized. Chart Industries’ (Nasdaq: GTLS) $40 million acquisition of specialty water solution provider AdEdge last month is the only the latest transaction showing that corporates and private equity alike are betting on the sector’s prospects.
The AdEdge deal has potential legislative tailwinds: the target’s technology removes PFAS and PFOS, organic materials that are otherwise difficult to treat. Should President Biden’s American Jobs Plan become law, the sector will have access to $56 billion of federal spending to upgrade rural and aging water systems, and increase purification capacity to filter out toxic PFAs. That spells lucrative capital contracts for providers, who net higher service and aftermarket revenues on such projects. High renewal rates for corporate customers, sometimes approaching 90 percent, could mean some government-stoked revenues become recurring even after funding expires.
KKR’s ESG vehicle, the Global Impact Fund, has also invested in the space recently. The fund formed municipal and industrial wastewater treatment company Axius Water, through the acquisitions of Environmental Operation Solutions, Nexom, and Environmental Dynamics International. And private equity has put an even bigger stamp of approval on the market. Solenis, a specialty chemical maker whose products face water-intensive industries, was sold to Platinum Equity for $5.25 billion in July from Clayton, Dubilier, & Rice and BASF.
The same government support should help already lucrative water treatment operations become more attractive to private equity. The middle market should take note. At expected sales of $35 to $45 million, AdEdge was well within the takeover parameters of many funds. Perhaps other midsized players like Evoqua Water Technologies (NYSE:AQUA) could also see takeover interest.
Editor’s Note: Mergers & Acquisitions is looking for private equity firms with advanced strategies on ESG. Earlier today, we opened up the Call for Nominations for our new PE Innovators in ESG. Read more here.