Ecolab boosts water services with Ecovation deal

St. Paul, Minn.-based Ecolab (NYSE: ECL), which offers cleaning and sanitizing solutions for a number of industries, announced today that it would acquire Victor, N.Y.'s Ecovation for $210 million.

Ecovation provides renewable energy solutions and effluent management systems, primarily for the food and beverage industry, which uses a lot of water that needs to be treated.

Ecolab already has some water treatment solutions, but today's deal could give a significant boost to the company's offerings.

Treatment options for dairy, beverage, and meat and poultry producers often include large aerobic ponds that sit outside of plants, but the costs of those ponds have gone up, as have complaints about odor.

"There's been a drive to create something that was a more effective and efficient solution, which Ecovation was able to develop," Michael Monahan, spokesman for Ecolab, told the Cleantech Group.

Founded in 1995, Ecovation designs, constructs and operates on-premise treatment facilities that can clean effluent as well as convert organics to biogas.

"The methane that's produced from the waste treatment, that can serve to help reduce a plant's energy usage," said Monahan.

There's been some significant movement in the water industry over the past few months, with one big deal getting put on hold and another heading to market without much of a splash.

Last November, Voorhees, N.J.-based American Water Works, one of the largest water utility holding companies in the U.S., had its planned initial public offering shelved by RWE (OTC: RWEOY), its Essen, Germany-based parent (see American Water IPO put on the backburner).

Surrey, U.K.'s Cascal (NYSE: HOO), which provides water and wastewater services, hit the U.S. market last week, raising $144 million after pricing at the low end of its expected range (see Cleantech IPOs take a swim in U.S. waters).

Privately-held Ecovation has multiple installations in operation, including one at Breyers Yogurt in North Lawrence, N.Y., that, according to Ecovation, gets 25 percent of its total steam requirement from the treatment and energy system.

Check out the Ecovation system at Breyers Yogurt here >>

Ecovation said the system went into operation in August 2006 and pumps out 180 million BTUs per day.

The company has facilities installed and operating around the world for companies including Kraft Foods, Constellation Brands and Unilever.

Ecolab said Ecovation is growing rapidly, with 2007 sales of $50 million, up tenfold since 2005, and it said 2008 sales are expected to exceed $100 million.

The St. Paul firm said the deal is expected to be up to 1 cent dilutive to earnings per share this year, and add to earnings from 2009.

Ecolab said the potential for Ecovation's complete plant solutions are substantial, forecasting the U.S. food and beverage market opportunity alone to exceed $4 billion.

"They're just a very small part of that market today, so it gives us a lot of room for growth," said Monahan.

He said a food processing plant can often go through half a million gallons of water per day, and that the need to treat that water is very significant to a plant's operations and effectiveness, as well as its profitability.

Ecovation and its 70 employees will continue to operate out of Victor, N.Y., as part of Ecolab's food and beverage division, but Monahan said Ecovation's system could expand beyond that niche.

"We expect there will be some natural add-ons within our normal customer base to that customer base of Ecovation's, but that'll be occurring naturally as part of our development of that business," he said.

In addition to food and beverage, Ecolab has customers in the foodservice, healthcare and hospitality markets. It's other divisions focus on products for textile care, water care, and pest control.

Monahan said the Ecovation deal is expected to close very shortly. Although Ecolab will pay $210 million, the company plans to sell approximately $40 million of Ecovation's long-term leases, which it said would result in an effective net purchase price of $170 million.

"The leases relate to the construction and ownership of the actual plants that do the treatment on the customer site," said Monahan.

He said the leases would be sold to third parties.