H2O Innovation Expands Water Treatment Operations Through Acquisition of Itasca Systems

Water treatment company H2O Innovation Inc. recently announced the acquisition of Itasca Systems Inc. in a $24 million deal. Itasca Systems provides specialized water systems engineering and technical services related to membrane filtration and other treatment technologies. This strategic purchase allows Canadian cleantech leader H2O Innovation to expand its engineering and system design capabilities in North America’s municipal and industrial wastewater sectors.

H2O Innovation: An Established Water Treatment Innovator

In 2000, H2O Innovation became a significant player in developing advanced water and wastewater treatment technologies and solutions. The publicly traded company is headquartered in Quebec City, Canada, with existing operations across Canada and the United States.

H2O specializes in membrane filtration, bioreactors, disinfection systems, and performance monitoring platforms for municipal, commercial, industrial, and natural resource clients. Some of their signature solutions include the flexMBRTM membrane bioreactor, ClorTecTM disinfection units, and IntelogxTM process control systems.

Over the past two decades, the company has shown impressive growth through strategic mergers and acquisitions that bring complementary technologies into its portfolio. Their innovative treatment approaches have also won H2O numerous industry awards and helped build its reputation as a trusted water treatment partner.

Itasca Systems – A Team of Specialized Experts

Based in Minnesota, Itasca Systems Inc. is a smaller firm that has been providing engineering, piloting, and technical services for challenging water and wastewater problems since 2005. The company mainly focuses on membrane applications like microfiltration, ultrafiltration, and reverse osmosis.

Itasca’s expert team takes a hands-on, customized approach based on in-house testing and piloting. For clients struggling with complex water issues, they can engineer optimized solutions tailored to the unique needs of the application. This may encompass treatment process design, equipment specification, operational modeling, staff training, etc.

Over 70 percent of Itasca’s business involves industrial and natural resource clients like food and beverage producers, chemical plants, refineries, and the paper-pulp industry. The remaining portion comes from municipal water authorities and utilities.

Itasca often handles problematic, high-fouling wastewaters that are difficult to treat due to factors like high salinity or variable inputs. Their specialization in pretreatment, membrane troubleshooting, and chemical cleaning optimizes systems struggling with efficiency and reliability issues.

Itasca has grown into a recognized regional brand driven by reputation and word-of-mouth rather than marketing. H2O’s acquisition offers Itasca broader channels to apply its expertise across wider geographical markets.

Strategic Synergies Between the Companies

H2O Innovation’s latest expansion through the Itasca Systems acquisition adds integrated engineering capabilities to its existing product offerings. Itasca’s specialized knowledge and field experience with complex membrane applications perfectly complements H2O’s membrane technologies like the flexMBR.

CEO Frédéric Dugré said, “Itasca’s expertise strengthens the value proposition of our water technology business line by resolving membrane fouling issues regardless of brand or membrane type, maximizing wastewater reuse, optimizing energy consumption, and providing customers training tools.”

Additionally, Itasca’s business model and customer base have little overlap with H2O’s current water treatment operations. By absorbing these new capabilities, H2O can pitch complete membrane bioreactor and tertiary treatment solutions to attract industrial and natural resource clients.

Itasca’s base in Minnesota geographically expands H2O’s footsteps beyond Canada and the North Eastern United States. H2O gains a platform to access Midwestern regional markets with bundled services combining specialty engineering and tailored water treatment systems.

For Itasca Systems, H2O Innovation represents a growth track beyond its capacity as a small independent firm. Joining H2O’s 1,800+ employee operation and North American infrastructure unlocks the ability to scale up their engineering across broader markets. Maintaining Itasca’s brand identity preserves existing client relationships while gaining financial backing and resources to take on more ambitious projects.

Both sides see this as a 1 + 1 = 3 scenario where the synergies between the two companies can catapult growth trajectories to the next level.

Deal Structure and Financial Considerations

H2O Innovation acquired 100% of Itasca System shares for US $24 million by offering 40% cash and 60% in H2O stock at closing. The new partnership also has an earn-out clause where Itasca shareholders can obtain extra compensation if the company hits certain performance milestones over the next three years.

In their latest quarterly report, H2O disclosed annualized revenues of over $100 million with a healthy long-term debt ratio of around 0.15. The addition of Itasca is forecasted to boost revenues by 15-20% annually.

Conversely, Itasca has maintained average historical profitability margins of around 10% on annual revenues of around $10-15 million. The pandemic has negatively impacted their finances over the past two years. Joining H2O offers them financial stability and room to recoup growth.

The valuation of the deal ultimately depends on the success of the synergies. However, structuring more compensation contingent on Itasca’s performance incentivizes the team to maximize results. If they hit targets, they reap higher payouts while fueling H2O’s growth.

Vision for the Future

According to CEO Frédéric Dugré, this latest acquisition represents another building block in executing H2O Innovation’s strategic global vision:

“Our five-year plan outlines the desire to double the size of the Corporation based on organic growth and acquisitions. Itasca’s addition perfectly fits this vision by bringing complementary water treatment expertise […] and significant synergies to reinforce our capacity to develop cutting-edge projects.”

Itasca founder and new Directorate director Mark Buckley, also sees a bright future for me, Tasca’s clients gaining access to H2O’s full range of water treatment offerings.

With new opportunities to combine specialized engineering, membrane technologies, and system integration, they aim to tackle more challenging water issues and settings like water reuse, desalination, resource recovery, and zero liquid discharge. This fuels innovations advancing a circular water economy approach.

Through strategic consolidation, H2O Innovation and Itasca Systems leverage each other’s capabilities to offer more comprehensive and cutting-edge wastewater treatment solutions. Their complementary fit unlocks growth potential neither could quickly achieve alone. Under H2O’s banner, they now cover the entire spectrum spanning R&D, piloting, process design, component supply, treatment system fabrication, operator training, and performance optimization.

Moving forward, this union represents the power of targeted mergers to foster synergies and sustained growth trajectories even through challenging economic climates. Their story underscores how strategic compatibility beyond financials drives successful partnerships primed for growth.