More than 70% of Earth is covered with water. But more than 95% of that is infused with salt. We need more of the potable variety. What do we do when we’ve pushed Mother Nature to the brink? We adapt.
I like water. I’m sure you do, too.
It is, after all, the most important substance on the planet. It covers 70% of Earth and comprises about 60% of the human body.
Without it, we die.
The trouble is: There isn’t enough potable water out there. According to the U.S. Geological Survey, more than 96% of the water on Earth is salt water in the oceans.
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Turning this saline water into potable water is now a growing industry we know as “desalination.”
Desalination is not a new technology, but we are seeing significant advances in the way we go about removing salt from water and making it potable.
The trouble is: There isn’t enough potable water out there. According to the U.S. Geological Survey, more than 96% of the water on Earth is salt water in the oceans.
As we discussed in the August 2, 2016, Wall Street Daily issue, new engineering techniques and novel materials have been put to use in the world’s largest reverse-osmosis desalination facility, on a Mediterranean beach 10 miles south of Tel Aviv, Israel.
The Sorek facility, built by IDE Technologies for approximately $500 million, now produces about 20% of the water consumed by Israeli households. When it reaches full capacity it will pump out 627,000 cubic meters of water per day.
Sorek is using 16-inch seawater reverse-osmosis membranes in a vertical arrangement — a first in the desalination industry.
This innovation reduced the plant’s footprint and kept capital expenditure down. It will also result in lower energy consumption and substantial cost savings over the life of the facility.
Sorek is also using a chemical-free filtration system based on porous lava stone to capture microorganisms that would otherwise clog the membranes.
Sorek is using 16-inch seawater reverse-osmosis membranes in a vertical arrangement — a first in the desalination industry.
Still, the defining characteristic of the global desalination industry is fragmentation. A new company is here to address this problem.
AquaVenture Holdings LLC (WAAS) debuted on the New York Stock Exchange on October 6, 2016, with its 6.5 million shares priced at $18 per to raise about $117 million.
As of yesterday morning, AquaVenture shares were changing hands at $22.15, 23% above the IPO price.
That’s a pretty strong statement about the value of AquaVenture’s business proposition.
The company was formed “to become the world’s leading water service provider.” Indeed, it emphasizes the importance of “water as a service” (WAAS), rather than mere commodity.
According to a 2014 report by Bank of America Merrill Lynch, the global water market is valued at approximately $600 billion and is growing by about 7% per year.
AquaVenture, operating through its subsidiaries Seven Seas Water and Quench, plans to acquire “old school” facilities using technologies such as thermal desalination and upgrade them to reverse-osmosis technologies.
Such upgrades improve efficiency and reduce operating costs. AquaVenture’s WAAS fixed-rate contracts with consumers and government entities establish the basis for predictable, recurring revenue.
According to a 2014 report by Bank of America Merrill Lynch, the global water market is valued at approximately $600 billion and is growing by about 7% per year.
Seven Seas Water provides desalination and wastewater treatment solutions in the Caribbean and South America. It produces 7 billion gallons of potable, high-purity, industrial-grade and ultra-pure water per year to government, municipal, industrial, and hospitality customers.
Quench is AquaVenture’s U.S.-based subsidiary. It focuses on point-of-use filtered water systems and related services to more than 40,000 institutional and commercial customers, including more than half of the Fortune 500.
According to AquaVenture’s filings with the Securities and Exchange Commission, nearly half of its revenue comes from Seven Seas’ desalination operations.
Quench’s typical initial contract term is three years, with an automatic renewal provision. The average rental period for its filtration systems is more than 11 years.
Overall, the company reported a compound annual growth rate for revenue of 40.5% from 2010 through 2015.
Revenue for the 12 months ended December 31, 2015, was $100.3 million, while gross profit was $46.8 million.
Management plans to deploy $45 million of its IPO proceeds for the construction of a new desalination facility in Peru.
This is a seasoned team with a history of identifying, executing, and integrating acquisitions. Seven Seas and Quench have completed more than a dozen transactions since 2007.
The United Nations expects 50% of the world’s population will be living in areas with inadequate potable water supply by 2030.
Expanding its geographic footprint and broadening its service offerings are additional objectives in the wake of the IPO.
AquaVenture is poised to capitalize on further advancements in desalination technology, such as more efficient, single-layer, 0.65-nanometer-thick molybdenum disulfide (MoS2) nanopore membranes for filtration.
Population growth, urbanization, and industrialization, coupled with the depletion of groundwater sources, pollution of freshwater lakes and rivers, and poor water infrastructure, will put increasing stress on the world’s potable water supplies.
The United Nations expects 50% of the world’s population will be living in areas with inadequate potable water supply by 2030.
It’s this scarcity problem that AquaVenture, with its “water as a service” template, hopes to solve.
As Shane Parrish of Farnam Street notes, “At some point, to be healthy, you do need to suck it up and eat some broccoli!”
Smart investing,
David Dittman
Editorial Director, Wall Street Daily
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