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Evoqua: Steady Growth And M&A Interest Push Valuations

Nov. 04, 2017 2:30 AM ETXylem Inc. (XYL)9 Comments


  • Evoqua's IPO has been a great success, as investors like predictable and steady growers.
  • This demand has pushed up valuation multiples quite a bit, a bit too much to my taste.
  • Looking to learn more about the outlook for 2018, I remain cautious for now.

Evoqua Water Technologies (AQUA) has gone public in an IPO which has been well received by the market. Shares jumped 16% on their opening day to nearly $21 per share after shares have been sold at the midpoint of the preliminary offering range of $17-19 per share.

Success was nearly guaranteed as investors like predictable business models after Honeywell (HON) was reportedly interested to acquire the company outright. This demand has pushed up valuations a bit too much, despite predictable growth, and I am not jumping aboard with an earnings yield being equivalent to the yield on Treasury bonds.

Water Treatment Solutions

Evoqua claims to be the largest North American provider of clinical water treatment solutions with over 200,000 installations and 38,000 service contracts. The company claims that its 1,250 pending and granted patents ensure that it can achieve purification levels which are 1,000 times greater than "typical" drinking water. The company has grown to become quite a giant with over a billion in revenues, over 4,000 employees, and operations which are mostly focused on North America. Half of these sales come from industrial end markets, a quarter from the municipal market, and the remainder from the so-called products business.

While the company has been in business for over 100 years, the current form of the business is highly impacted by the 2015 acquisition of the water business of German-based Siemens (OTCPK:SIEGY) which came at a price of $730 million. Ever since the company has made numerous other acquisitions including the 2016 purchase of Neptune-Benson at $284 million and multiple smaller deals.

The Offering

Some 27.8 million shares were sold to the public, of which just 8.3 million were sold by the company which saw gross proceeds of $150 million following the offering. The other shares were sold by AEA, a global private equity

This article was written by

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Finding value that gets unlocked in M&A, IPOs and other corporate events
The writer is a long term value investor and M.Sc graduate in Financial Markets with over 10 years experience. Value can be found in both long and short ideas and uses options to enhance the risk-return profile of investment ideas. Disclaimer: This article provides opinions and information, but does not contain recommendations or personal investment advice to any specific person for any particular purpose. Do your own research or obtain suitable personal advice.

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