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The Pure Technologies Takeover of Pressure Pipe Inspection Company

Tom Konrad CFA

In February, I published an interview with Sam Healey portfolio manager at Lamassu Holdings about Pure Technologies (PUR.V, PPEHF.PK), a company that can find and repair leaks in water systems without shutting down the system. Last week, Pure Technologies announced that it intended to acquire Pressure Pipe Inspection Company for cash and stock worth as much as C$34.9 million.  The market's reaction was initially positive with PUR.V gaining C$0.29 on Wednesday, the day following the announcement, but most of these gains were given back on Thursday and Friday.

My initial feeling is that this will be a good merger for Pure Technologies, but since Sam Healey follows the company much more closely than I, I thought I'd ask for his take, and also share it with you.  He was kind enough to share his thoughts even though he was on vacation.  Here is what Sam had to say:

The biggest plus of the PPIC acquisition is that they were PUR largest competitor and were active in Markets that PUR wanted to increase share in.  NA, mostly.  Also, PPIC would have provided an easy entrance into the space for larger competitors looking to expand into the space.  Thus, PUR has effectively increased their "moat".

PPIC did not sell any products, they functioned as a service company which means they ran at higher margins and thus the acquisition will not hurt PUR margins going forward.  The earn out (over 20 MM C$) suggests that annual revs will be in that neighborhood, up from 14.6 MM C$ last year, a 30% growth rate, which is encouraging.

What I am most excited about here is that there may be very large cross selling opportunities for PUR to sell its AFO permanent monitoring product to PPIC existing customers.  PPIC customers rely on PPIC for service related to inspection of large diameter pipe.  Many of these customers would benefit greatly from a permanent monitoring system, AFO, and given the success AFO has demonstrated in DC (recently announced - June I think - do not have my notes here) I suspect the sale will not be difficult should there be customer demand.  If that were to materialize it would result in both a nice ramp in product sales and recurring revenue at high margins for monitoring services.  That is the potential home run here.

That all makes sense to me.  The cross-selling opportunities can be especially important for a company like Pure Technologies which is creating a market for a new technology.

You can read the original Pure Technologies article here.

DISCLOSURE: Long PUR.V
DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.



was posted on AltEnergyStocks.com.


       

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