De.mem set to enter multibillion-dollar European water treatment market

De.mem ASX DEM Europe wastewater water treatment market Germany
De.mem is set to acquire 75% of a German based company offering services and solutions for industrial waste water treatment with revenues of $1.8 million in calendar year 2017.

Water treatment company De.mem (ASX: DEM) has unveiled plans to make its European debut after announcing the planned acquisition of a German technology company.

De.mem is advancing a range of new and revolutionary “membrane technologies” to capitalise on the currently fragmented de-centralised water treatment market – a means for industrial companies to cleanse their water supply as part of their operations.

Earlier this morning, De.mem confirmed it had signed a non-binding term sheet to acquire 75% of a German water treatment technology company, in exchange for A$865,000.

The acquisition target supplies services and solutions for industrial wastewater treatment across Germany and is within striking distance of neighbouring markets in Holland and Belgium.

The deal is expected to reaffirm De.mem’s commercial position after the company reported the strongest revenue-generating quarter in its 4-year history, with cash receipts of around $3.3 million in the past quarter.

De.mem has said that the acquisition will be value-accretive and will add to the company’s bottom line in the next financial year after the deal completes in early 2019.

According to De.mem, its target company designs, builds, owns and operates customized and high-quality industrial wastewater treatment systems with clients including multinational corporations from sectors such as plating, metals processing, chemicals and manufacturing.

Product lines include mainly the supply of advanced chemical dosing systems, solutions and consumables for industrial wastewater treatment.

With the deal now announced, De.mem has said that closing and completion are subject to the finalisation of due diligence, the execution of definitive agreements and the raising of sufficient funds via a forthcoming entitlement offer to existing shareholders.

Funding for water treatment

The deal will be funded by a rights issue to existing shareholders with De.mem intending to issue a further 15 million shares at 0.135 per share – a 20% discount to its closing price of $0.17 per share last Friday.

The target company generates around A$1.8 million in annual revenues and EBIT of A$230,000 in the 12 months ended 31 December 2017, thereby making the acquisition value-accretive and highly synergistic for the Australian company.

The German acquisition is the second major company De.mem has acquired of late.

In September last year, De.mem acquired Queensland-based company Akwa-Worx, a leading provider of water and wastewater treatment systems. Following the acquisition, De.mem secured several major contracts from Australia’s mining, industrial, and municipal sectors, the largest one alone worth approximately $1.7 million.

De.mem has said that its latest acquisition target has a focus on the plating and metals processing industries – a significant industry in Germany and many Asian countries including China.

The prime value driver behind the acquisition is the European location which will effectively allow De.mem to springboard into the European market via the region’s largest economy.

In March this year the company made public its intentions to capitalise on value-accretive opportunities in the wastewater treatment space – a market that is worth €1.45 billion (A$2.27 billion) in Germany alone.

On the global stage, the market for packaged or decentralised water treatment systems was valued at US$12 billion (A$16.5 million) in 2015 and is projected at an annual rate of 10% to reach US$21.8 billion (A$30.1 billion) by 2021.

Tech progress

As a prelude to De.mem’s impending European market expansion, the water treatment company released its first in-house-developed hollow fibre ultrafiltration (UF) membrane for commercial sale, just last week.

Speaking exclusively to Small Caps, De.mem CEO Andreas Kroell said that the new membrane has been “extensively pilot tested and has demonstrated excellent technical performance”.

UF technology is expected to add to the company’s growing portfolio of water treatment technologies including hollow-fibre forward osmosis which could lead to substantial cost savings of up to 70% in industrial waste water treatment.

De.mem’s UF technology is said to combine a relatively low pore size, which indicates a strong rejection of contaminants while delivering “high throughput”, in other words, a system that uses specifically engineered hollow fibre membranes that work similar to a sieve, while having additional properties that make them highly economical for industrial companies.

Asian progress

In recent months, De.mem has also made a foray into Asia where its operations were described as “robust” by Mr Kroell.

“From a strategic perspective, validating our proprietary membranes for broad sector application and across a large customer base in Asia through several small-scale commercial projects is another substantial milestone achieved during the previous quarter,” said Mr Kroell.

“This gives us a major strategic advantage in a highly competitive sector, and larger revenue-generating commercial deployments throughout the Asia-Pacific region are expected,” he added.

George is an award-winning market analyst who has authored articles and editorial opinion pieces for multiple publications around the world. He has written about a wide variety of topics including financial markets, stocks, trading, politics and economics.