Investments in water treatment and conservation technologies have been funded by $3.1 billion in private investments since 2007, and the innovation sector is a fraction of water activity overall. While outsiders see the water industry as monolithic, it is a highly fragmented industry. Each sector is unique, with different timelines for venture funding, growth equity, and exit windows.
In a recent report (Client registration required), Lux Research dissected the water sector by technology type and application to gain insight into how investors approach it. In terms of technologies, the report analyzes advanced oxidation, biological, chemical, thermal, mechanical, membranes, and monitoring and efficiency. But this week’s graphic looks at how private placements since 2007 were distributed across applications, specifically exploration and production (E&P), potable water, process water, infrastructure, and wastewater.
After raising only $37 million in 2008, annual investments into E&P have steadily grown to $62 million by 2011. This year is no exception, with E&P having already secured $34.2 million in the first four months of 2012. The emergence of start-ups in this sector is due to the recent shale gas disruption (see our report “Risk and Reward in the Frack Water Market.” Client registration required). The oversupply of natural gas in the U.S. insures only companies already well-positioned in the market will survive.
Infrastructure has attracted nearly $1 billion in investments since 2007, making it the most heavily invested of the group – even excluding pure play infrastructure providers, which are not reflected in the graphic. Private placements to upgrade infrastructure rapidly grew from $134.9 million in 2007 to $398 million in 2010. After stalling in 2011, investments bounced back in 2012, with $95 million in private investments recorded for the first four months of this year. Buyers have also been active in this space, with $1.3 billion worth of merger and acquisition (M&A) activity since 2007.
Companies that treat water to potable quality raise small but consistent levels of investments. Since 2007, potable water companies have raised $355 million in private investments and attracted $411 million in M&A activity. One particular point-of-use potable water treatment company, Quench, raised five rounds of funding since 2008, draining a total of $98 million from its investors. With this much capital infused, only an IPO will satisfy its investors.
Multinationals pay for high priced process water technologies. This sector contains the most highly valued M&A transactions. Among them are Ecolab’s $8.2 billion merger with Nalco, and Pentair’s acquisition of both Porous Media ($225 million) and Norit’s Clean Process Technologies division ($713 million). This sudden spike in large scale consolidation activity derives from cash accumulated during the economic downturn, so transactions of this scale will likely slow.
Wastewater treatment is a highly energy-intensive process. Consequently, innovations here are driven technologies that seek to recover energy or nutrients. Many companies specializing in nutrient recovery from wastewater are based in or have ongoing projects in northern Europe. Europe also leads the way in nitrogen and phosphorous removal from wastewater for eutrophication prevention. Companies in wastewater treatment typically require large funding rounds, and acquisitions have slowed.
Source: Lux Research report “Big Cleantech: Investing in Water Innovations.”