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Red Herring Research: Cleantech

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R ed Herring Research provides leading edge overviews,

insights and analysis about emerging and disruptive trends

in the Information Technology, Communications, Life

Sciences, Cleantech and Consumer Technology sectors.



Our global research team is comprised of senior analysts and

technology writers with expertise in a variety of disciplines. They

hold a deep understanding of how local technology activity, such

as research and development, product creation and financing fit

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Red Herring Research coverage of broad technology trends

acts as a complement to the hundreds of topics reported in Red

Herring’s weekly magazine and at its international events. With a

resource of nearly 50 technology writers in North America, Latin

America, Europe, India, China, Canada, and elsewhere, Red

Herring has a network of experts able to identify and comment on

emerging trends and financial activity in the fast-moving technol-

ogy industry.



Red Herring Research continuously focuses on the most innova-

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We hope this report will serve to further your understanding of the

water technology market, and its many opportunities.









Liquid Assets

Emerging Technologies in the Chris Bonnet | Managing Director | Red Herring Research

MAY 2007 Residential Water Treatment Market

Cleantech | RED HERRING RESEARCH 1

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TABLE OF CONTENTS: LIQUID ASSETS

Chapter 1: Market Introduction 03 Chapter 01

Water has presented itself as one of the most important

socio-political issues of our time. Over $4.5 trillion is needed MARKET INTRODUCTION

to address water infrastructure for the next 20 years.



Chapter 2: Key Issues 07

Urban water systems are in a period of stress and uncertainty and

will experience rapid and significant changes in coming decades.



Chapter 3: Emerging Technologies 19

The classic water treatment technologies are ultraviolet

exposure, reverse osmosis, ultra-filtration, micro-filtration,

distillation, ozonation, carbon adsorption and ion exchange.



Chapter 4: Investment Opportunities 27

The global water market for investors will be large enough

during the remaining decade to allow for several competing treat-

ment and desalinization technologies.



4.1 Public Companies 28

- Leading global public companies

- Leading global water indices

4.2 Private Companies 31

- 12 Leading global water treatment companies



4.3 Comparable Table 44

- Established water technology companies: valuation

- Emerging water technology companies: valuation



4.4 Financing Activity 46

- Recent M&A activity



Chapter 5: Analysis & Conclusion 51

No other industry rivals the global water industry in the

number of key drivers propelling the growth of the industry.



Chapter 6: Appendix 54

- Glossary of Terms

- Water Technology Companies

- Water Treatment Companies

- Desalinization Companies

- Global Water Conferences







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MARKET INTRODUCTION





MARKET INTRODUCTION concern are the Middle East, North Africa, South Africa, South

Asia and parts of China – regions in which many countries are $4.5 trillion

ill-equipped to deal with these pressures.

A Global Problem

is needed to



W

ater has presented itself as one of the most important

The Global Water Partnership estimates that $4.5 trillion is

socio-political issues of our time. According to the address water

needed to address water infrastructure for the next 20 years. The

United Nations, one in five people do not have access to

safe drinking water, amounting to over 1.2 billion people world-

EPA estimates that $277 billion is needed to ensure safe drinking infrastructure

water in the U.S. alone. So we just buy bottled water. But despite

wide. The World Health Organization and UNICEF report that

the need for cost-effective water solutions worldwide, bottled wa-

for the next

5.2 million people die each year from waterborne disease, most

ter can cost 1,000 times or more than using tap water. Ironically, 20 years

of whom are children. In fact, the death toll from water-related

30-50% of bottled water is nothing more than packaged tap wa-

illness is twice that from AIDS. At any given time, approximate-

ter. As such, the bottled water market is playing a leading role in

ly half of the people in the developing world are suffering from

a water-related sickness. Most of these waterborne illnesses are

preventable with proper sanitation, including disinfection of ��������������������������������������������������������������������������������

water. In fact, when the U.S. implemented chlorination in 1908,

typhoid fever was eliminated within a few decades as all citizens

gained access to treated water.



Water Use, 1995



4% 4%

14.6%

45.5% 80.6% 11.4%

9.4%

Non- Agriculture

OECD

OECD Energy



Household

30.5%

Industry and

services



Source: OECD







Water use has been growing at more than twice the rate of

worldwide population increase, while existing water sources are

being rapidly depleted and water quality is growing worse. The

������������������ � ���� ���� ���� ����� ����� ������ ��������������

increasing population is also estimated to need 55% more food ��������

by 2030. According to the Organization for Economic Co-op-

eration and Development (OECD), By 2025, global water use is

expected to rise by up to 30% in developing countries and over

������������������������� ����� ���� ������������������������ �������� ���������

10% in the developed world. The population living in water- ��������������������� �������������������� ���� ��������������������� ������� ���������

stressed areas is set to double over the period 1995-2025, and

by 2030 some two-thirds of the world’s population may experi- Source: World Resources 2000-2001, People and Ecosystems: The Fraying Web of Life,

World Resources Institute (WRI), Washington DC, 2000.

ence moderate to high water stress. The regions of particular



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MARKET INTRODUCTION









conditioning people for the privatization of public water utilities

and increased expenditures on residential treatment equipment.

Chapter 02

Canada has 20% of the world’s fresh water supply, most of it

All Right for Some

in the Great Lakes, with the remainder pouring unchecked into KEY ISSUES

Water Water

withdrawals poverty three oceans. North Americans are considered the world’s larg-

m 3 per index

person* ranking‡ est consumers of water, using 100 gallons per day per person.

United Their use of fresh drinking water is three times higher than

1,688 32

States that of Europe. While the rest of the world considers an ad-

Canada 1,431 2

equate supply of water to be 1,700 cubic meters per capita per

Australia 945 44

Japan 723 34 year, Canadians can enjoy access to about 605,000 cubic me-

Germany 712 35 ters of water per citizen per year. Nonetheless, in 2002, it was

India 497 100 estimated that Canadians only withdrew about 1,431 cubic

Finland 469 1 meters of water per capita, significantly less than Americans

China 431 106

(1,688 cm3) yet still more than any other country. America has

South

Africa

288 103 historically used more fresh water than any other country. In

Britain 201 11 fact, some of the world’s wealthiest cities — such as Houston

Sources: The world’s Water 2002-2003; or Sydney — are using more water than can be replenished.

Centre for Ecology and

Hydrology; World Water Coucil

*2000 estimate ‡2002

Travel the world, and we realize North America’s relationship

table 1 with water is both unique and enviable. Nonetheless, climate

change, increasing desertification and growing populations are

driving the demand for water in other parts of the world. Inten-

Worldwide water sifying the competition are agricultural and industrial concerns,

consumption

which are responsible, respectively, for 70% and 20% of the

global water consumption (see chart 1). Irrigation consumes

62% of the water supply in the developed world and 85% of

70%

the water supply in developing countries. The production of

clothing, fruit, vegetables and even jewelry all need water.

20%

10%

And the demand for cheap produce often encourages waste-

ful use of scarce water resources. It is not accidental that other

Agriculture/food Industry

Drinking

countries and industries giants are looking over the Canadian

fence, eyeing initially and hoping that this bounty can be

Source: GE

shared. So there is growing pressure on Canada to export water

chart 1

in bulk; but the attempts have run foul of environmentalists,

the Canadian government and Canadian nationalists. Now,

unsurprisingly, they have ended up in the courts. In other juris-

dictions, it has been said that the wars of the 21st century will

be over water.





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KEY ISSUES





KEY ISSUES ronmental Protection Agency and others estimate that water

and wastewater infrastructure repair costs may be as much as

$745 billion to $1 trillion over the next 20 years. Consumers

Residential Water Stress

do not pay full cost recovery in most countries. The struggle is





U

rban water systems are in a period of stress and uncertain-

������������ over what kind of water system is appropriate — one based on

ty, and will experience rapid and significant changes in

���������������������

public investment or privatization. The solution to the water By 2050,

coming decades. Water supply, stormwater management,

crisis put forward by the World Bank (WB), World Trade Orga-

and wastewater treatment systems face threats and opportuni- more than 40%

����������� ����������� nization (WTO), and the International Monetary Fund (IMF)

���� ties created by developments within the water management

is to privatize water resources. Indeed, the outsourcing of key

�����������

����� sector, and by forces from outside the water sector, beyond the of the population

��� water services to the private sector already represents a $260

control of water system managers. Whereas growing popula-

���

�������� billion market growing at 6% per year. In country after coun- will likely face

tions and urbanization in developing countries continue to put

try in recent years, the World Bank has been quietly imposing

��� �������

�������� a premium on investments in water infrastructure and industrial

a for-profit system of water delivery, leaving millions of people

some form of water

processing of water, municipalities in the industrialized parts of

���

�� the world are facing crumbling water distribution and sewage

without access to water. There is a cultural shift underway shortage, with one

from water as a right towards water being seen as a commodity

���� ���� treatment infrastructures. It requires $60-$80 billion of capital

people should pay money for. in five suffering

������������������

investment per year just to maintain basic water services. In

many municipalities, the water infrastructure system contains severe shortages

chart 2

In 1995, nine out of every ten people on the planet had enough

pipes laid more than a century ago. The natural effects of time

water (at least 1,700 cubic meters per head), according to the

and the elements can require the pipes to be repaired or re-

World Bank’s latest development indicators. Only 3% of the

placed.

world’s population faced severe shortages (less than 1,000 cubic

meters per head). Will there be enough water to grow food for

Understandably, in many municipalities up to half the water is

the 9.4 billion people expected to populate the Earth by 2050?

lost to leaks and broken mains. Nearly 60 percent of the drink-

Outsourcing ing water in Chicago never makes it to the tap. From another

(See chart 2) Ostensibly, by 2050, more than 40% are likely

to face some form of water shortage, with one in five suffering

of key water perspective, dripping taps in rich countries lose more clean

severe shortages. Given present trends, world demand for fresh

water than is available to more than 1 billion people in the

services to the water will grow sharply, a 70% expected increase (for house-

developing world. These same municipalities are hard pressed

hold use) by 2025. Shortages seem inevitable — and even war.

private sector financially to bring these facilities to par, let alone be attractive

As the world’s rate of water use increases, environmentalists and

enough for any privatization options. Billing is often chaotic.

economists argue that fresh water will be the most important

already represents Public water utilities, usually short of cash and expertise,

resource in the next few decades.

struggle to meet fast-growing demand.

a $260 billion

Watching ‘An Inconvenient Truth,’ a documentary film about

market growing Infrastructure Investments – Who Pays?

climate change, it seems inevitable that rising water levels, pol-

Even if water is a public good, it is not a free good. Someone

at 6% per year has to build the pumps and pipes and engineering systems to

luted and / or salt water, will eventually overwhelm the remaining

pockets of fresh drinkable water on the planet. What happens

deliver water. The American Water Works Association estimates

when our global water supply is totally dependent upon recycling

water utilities will have to invest $250 billion over the next 30

drinking water from either salt water, sewage or grey water? The

years to replace aging pipes. The cost of pipes for new devel-

crisis, however, has drawn the attention of several start-ups and

opments, security upgrades, advanced treatment methods and

large conglomerates, such as Siemens and General Electric.

other needs may raise that bill to $500 billion. The U.S. Envi-



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KEY ISSUES





Managing water is a business fraught with economic and cul-

Operating People

tural complexities. Our political systems and economic realities Company Symbol Location Served (M)

are largely unequipped for the real challenges of today’s global Veolia Water VIE:Paris/VE:NYSE France 115

water issues. As the various governments in the West debate Suez Environment SZE:NYSE France 114



about what is the most pressing mandate, the only option for Agbar AGS:Madrid Spain 37



municipalities is to patch up the problem areas in the water SABESP SBS:NYSE Brazil 23



supply chain and just hope that better days are not far. The 21st United Utilities UU:NYSE UK 22

Thames Water Acquired by Kemble UK 20

century water crisis is urgent, complex, and there are no easy

Water

solutions. The crisis will affect urban and rural populations. Aqualia/Proactiva Part of FCC Group Spain 18

Sino-French Joint venture btw Suez Hong Kong 16

Political constipation about adhering to the Kyoto Accord and Holdings and NWSH



the inability of governments to preempt disasters like Katrina ACEA ACE:Milan Italy 16

Severn Trent SVT:London UK 14

will only fuel a growing consumer movement, where individuals

Source: Company info

will take matters in to their hands and seek new technologies to

ensure that they are safe and have an adequate supply of water

for their families. Leading Water & Wastewater Services Companies

Perhaps in defiance of the privatization of the global water

In an effort to spur action to meet the impending crisis, the UN supply by the large multinationals, we believe that a consumer

General Assembly has proclaimed the period from 2005 to 2015 movement to acquire personalized simple, low-cost point-of-

as the International Decade for Action, “Water for Life”. This use water treatment technologies to purify polluted/grey water

began on World Water Day, March 22, 2005. Will science and for domestic use, will eventually counterbalance arguments for These water

engineering be able to solve the growing scarcity of clean water? privatization by mega infrastructure players (such as Suez and

treatment products

Are we able to put aside our differences and work together to Veolia Environnement — formerly Vivendi Environnement).

solve this threatening problem through cooperation and techni- may one day become

cal advancement? The World Health Organization stands behind these simple,

low-cost interventions at the household and community level

as ubiquitous as

Consumers are Driving Water Technology which are capable of dramatically improving the microbial soap, rotation-driven

Two French companies alone — Suez and Veolia — supply water quality of household stored water and reducing risks of diar-

to 230 million people around the globe, from U.S. cities like rhea, disease and death. Furthermore, these consumer products emergency radios

Atlanta to urban centers across the Third World. Both Suez and are already being rolled out in those parts of the world where and flashlights

Veolia expect double-digit annual growth in their water business, water is already in short supply. These products may one day

and each already has contracts that add up to more than $10 become as ubiquitous as soap, rotation-driven emergency radios

billion a year. Although companies are granted rights to market and flashlights, in areas where health and survival is the respon-

water — not ownership of the water itself — many nations and sibility of the community.

citizen worry that an inevitable expansion of the private sector

might escape essential public control. The most widely used water Some of the solutions to the world’s water problems sound both

privatization systems are the “affermage” or “leasing” model, obvious and brilliant. We are already witnessing innovation in

under which private companies manage publicly owned water as- India, Israel, Taiwan and Korea. In India, for instance, some

sets, and the “concession” model whereby private operators also builders are erecting apartment buildings without pipes for

have responsibility for the financing of the infrastructure. drinking water — instead, residents will get water from mobile





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KEY ISSUES





purification units. Huge demographic pressures are already whether the water has been contaminated, it is treated again

being felt due to the rapid urban and industrial developments before entering the municipal treatment process. As a result of

of countries such as China and India. According to the World the lack of confidence residential users have toward municipal

Health Organization, 35% of the world population will live in and industrial treatment efforts, we are witnessing significant

areas with water problems by 2025. At this rate, opportunities growth of residential water treatment activity. Residential water

for companies specializing in water treatment and distribution users are increasingly expecting “bottled water” quality from Water treatment

will be significant. their taps, and the only way to ensure that is to install treatment

activity is increasingly

Researchers are also trying to improve desalination membranes to ����������������������� being undertaken

turn sea water into drinking water. In Europe, the market hasn’t

evolved very rapidly for such products on the continent, where it ������������

by residential users

continues to be dominated by point-of-use (POU) water cool-

ers and gravity-flow carafes. Alternatively, demand is large and ������������������� ��������������

growing rapidly in Asia and less-developed regions, where sales

of reverse osmosis (RO) systems is increasing dramatically, i.e., ���������������

������������ ����������� �����������

��������� ��������� ���������

Taiwan and Korea. To fully address the markets in Asia, products

need to achieve greatly reduced cost and expanded health claims, ���������� ����������

��������������� ��������� ���������

such as arsenic reduction (India and Bangladesh) and microbio-

logical interception and disinfection. Latin American markets

������������

have been impacted by continued economic problems, even ��������������� ���������

though the need for water filtration is often compelling. Filters

with high dirt capacity and capable of operating at low pressure ���������������

are a necessity when selling to this region.



Red Herring

Two Main Water Markets and purification devices in their homes.

Investments in water technologies typically focus on two main

areas: Water Infrastructure and Water Quality. Both seek to Water Infrastructure: When water is delivered from the source, it

resolve global water challenges from opposite ends of the water is treated by the municipality, which then delivers it to the home

chain. From the source, water may be treated many times before (see flow chart above). Alternatively, water is sent to industry

reaching the drinking supply. Depending on where you live, where, depending on the application, is treated before entering

water can be treated using a number of technologies, most of the industrial process (e.g. aluminium or semiconductor produc-

which are determined by government regulation, by the munici- tion), and/or after the process. It is then re-treated by the mu-

pality or by industry. nicipality. A potential problem arises where industry is left with

the responsibility of pre-treating the water before sending back

Water is typically treated by the municipality before it enters into the municipal water system. Municipalities cannot keep up

our homes and businesses. However, for industrial use, water with the development of new treatment technologies in order to

may be treated before and/or after the industrial process. For address the ever-increasing introduction of hazardous chemicals

example, some industries require water purity beyond what is into the water supply each year. As a result, water treatment ac-

available from a given water source. Therefore, water is first tivity is increasingly being undertaken by residential users, who

treated, used for the industrial process, then, depending on fear an increasing degradation of their water supply will not be

resolved by their local governments.

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KEY ISSUES





on a national basis. Not a very stringent requirement for some

Water Quality is a subjective term, and municipal governments polluters, but an allowable limit, beyond which water quality is

are not required to provide the highest quality water available considered poor. State agencies incorporate the EPA’s WQC into

at any cost – only what is measured to be within an acceptable legally enforceable water quality standards and then establish

quality threshold. Municipalities are constantly challenged to water quality-based permit limits for water users. For “impaired” The market for

provide a balance between water quality and available resources water bodies, that is, not meeting water quality standards for

(financial, technological, etc.). Water often tastes very different one or more pollutants, state agencies allocate a Total Maximum municipal drinking

depending on the region. This is due not only to the different Daily Load (TMDL). TMDLs are “budgets” setting the amounts

water treatment

mineral concentrations by region, but also the amount of residu- of pollutants that water bodies can receive and be considered by

al chemicals after treatment, as well as the treatment process EPA as safe for various uses, such as drinking, swimming, fish- technologies will

itself. It is almost impossible for someone to taste the difference ing, etc. The TMDL analysis examines the chemical and biologi-

cal condition of the water body, determines all of the sources of

increase from

between a pure water source and a less pure one, the difference

being perhaps only the mineral content. The concentration of pollution entering the water system, and assesses the sensitivity $1.3 billion in 2006

potentially hazardous chemicals from a municipal water supply of the water system to absorb that pollution.

is often very small, but nevertheless a very contentious issue for

to $2.1 billion in 2011

governments and residents lacking adequate research on the Based on the data, the TMDL would then determine the maxi-

long-term health effects. mum acceptable quantities of any chemicals or other materi-

als that could impair the designated use (drinking, swimming,

Traditionally, most people trusted their municipal water sup- fishing, etc.). The total loadings determined are then allocated

ply until they heard on the news something that would suggest among the sources of pollution previously identified. Those allo-

otherwise. Increasingly though, people are not only replacing cations are then used in establishing limits for discharge permits.

tap water for bottled water, but insisting on installing more Given resource limitations and significant industry pressures, the

advanced water treatment devices in their homes and at work, EPA tries to ensure only truly impaired waters are put on lists

as municipal water treatment struggles to maintain a steady and that enforce TMDLs, in order to properly identify these water

clean supply. In addition, the practice of water re-use, typically bodies as a priority. Many water bodies used as a drinking sup-

limited to irrigation and industry (e.g. golf courses, hotels, etc.) ply, therefore, continue to be polluted, but their chemical concen-

is increasingly being introduced into more mainstream uses, trations are not considered critical.

as water scarcity continues to rise. We expect water treatment

activity (treatment, filtering, delivery) for higher quality water Water Infrastructure Market: The Water Infrastructure market

to continue to migrate from government hands to the end user, is fuelled by the ever growing demand for pumps, filters, mem-

creating a two-tiered system in developed countries. Clearly, this branes, pipes, etc., caused by the natural and accelerating deterio-

migration has already begun, but has not reached critical mass. ration of the infrastructure. In addition, new residential com-

Developed countries with significant water shortages will fuel munities are adding a growing market for higher quality water

the rise of residential water treatment technologies. and more treatment options. There is an escalating necessity for a

level of water quality and purity that can accommodate the vari-

How the US Government Determines Water Quality ous water uses, from drinking water to electronics manufacturing

The U.S. Environmental Protection Agency (EPA) recommends and food processing. Power generation, which is the single largest

maximum concentrations for pollutants present in ambient consumer of high purity water in the country, requires continued

water; the Water Quality Criteria (WQC). These values are access to a pure water supply for dams. Going forward, building

calculated to protect most of the water bodies, most of the time, and maintaining dams with access to a clean water source is be-





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KEY ISSUES





coming increasingly difficult and requires constant treatment for they only concentrate on these larger stories. Smaller companies

maximum efficiency. According to BCC Research, the U.S. market like Zenon Technologies (acquired by GE in March 2006 for

for advanced water treatments for power generation is estimated $656M) are part of the consumer/“democracy” reflex in that

at $487 million in 2003, rising at an average annual growth rate they allow the investor/consumer to do their part without hav-

of 8.3% to reach $726 million by 2008. ing to depend upon governments or municipalities to do the

right thing. In China, Korea and India, the consumer movement

Residential Water Market Size: According to BCC Research, the is fuelling the drive for safe water.

US market for municipal drinking water treatment technologies

such as membrane filtration, ozone disinfection, and UV radia- • Zenon Technology’s The Homespring™ Central Water Puri-

tion, will experience 10.7% growth by 2011 increasing from its fier is a solution for cottages or country homes where the

current market size of $1.3 billion (2006) to $2.1 billion. The homeowner has to rely on their own water treatment system

2005 global market for Reverse Osmosis membranes and system to provide purified water. These systems have been used in de-

components is estimated at $1.9 billion and is expected to rise at veloping countries to provide potable water for homes, apart-

an average annual growth rate of 10.3% to more than $3 billion ments, villages and schools. They were also deployed for use

by 2010. Of the membrane treatment technologies, BCC predicts in both the Asian Tsunami and hurricane Katrina disasters

that UV disinfection will see the greatest growth as its market for aid relief where they were used to supply potable water to

expands from $29.2 million to $149 million by 2011, an increase thousands of residents and relief workers.

of 38.6%. Water quality becomes more of a concern for residen-

tial users as industrial demands for water increase exponentially. • Silver-based water purification units for the home have been

Growth of the residential water treatment market is largely de- in use in Europe for more than 50 years. Royal Doulton

pendent on the perceived quality of local tap water supplies. ceramic candles combine silver within the ceramic during

manufacturing to take advantage of the outstanding bacterial

The traditional expectation was for municipalities to secure disinfecting properties of silver. These units meet the National

potable water for their residents. However, as an increasing Sanitation Foundation Standards covering bacteriostatic

amount of chemicals, metals and other materials are introduced efficacy, the reduction of lead, copper and particulates and

into the water supply by industry every year, more innovative the reduction of taste and odor. They also have the approval

techniques must be developed to identify and remove them. of the US Environmental Protection Agency as a bactericidal

Municipalities and industry simply do not have the resources unit.

to secure and guarantee a quality water supply for residents. In

light of this, a paradigm shift is underway, where residents are • Proctor & Gamble’s PUR Purifier of Water technology was

taking matters into their own hands and purchasing advanced developed in cooperation with the U.S. Centers for Disease

water treatment devices. Control and Prevention (CDC). It consists of a small sachet

whose contents could purify 10 litres of water, removing dirt

End-User Initiatives (What Can We Do to Help?) and germs. The company invested significantly in R&D to de-

With respect to water “plays,” Suez and Veolia Environnement velop the product over eight years, but early market tests for

represent large infrastructure companies with significant re- commercial applications yielded mixed results. As a result of

sources committed to global water issues. However, the average converting the product line to a non-profit production model,

investor does not buy the “infrastructure” products these com- by the end of 2006, P&G had provided 50 million sachets in

panies offer — typically, clients are only governments and mu- two and a half years, in comparison to the 3 million sold over

nicipalities. Investors may feel detached from the water issues if the previous three years using their commercial model.





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• KDF Tap Head: KDF is a relatively new material to the home

water purification field. It is a high-purity copper/zinc alloy Chapter 03

that is melted together and flaked to make a “golden sand.”

It has two properties: KDF uses chemical oxidation reduction EMERGING TECHNOLOGIES

to neutralize harmful chemicals, including chlorine, hydrogen

sulfide, and iron; these substances are actually chemically

changed into harmless substances (chlorine to chloride, etc.),

which are then mechanically filtered out. KDF also produces

.04 volts of electricity and acts like little magnets to attract

and permanently trap pollutants like heavy metals. KDF is

most commonly used in small showerhead filters that are

designed specifically to remove chlorine from shower water.

Because activated carbon and KDF units work by removing

pollutants as the water passes through them, the amount of

clean water available per day is limited only by how much

water can flow through the tap.



• Waterless toilets and urinals represent the ultimate in water-

efficient sanitation. Waterless urinals using liquid-repellent

coatings and a special lighter-than-urine biodegradable trap

fluid to prevent odors (e.g. Waterless Co.) are gaining in

popularity in the U.S.



• Green infrastructure refers to techniques and systems that

use, to human advantage, the natural capacities of soil and

vegetation to absorb and retain water, and to take-up, trans-

form, or otherwise treat pollutants in water. Green infrastruc-

ture is an important approach to urban stormwater manage-

ment, and offers potential for management of some types of

wastewater.



• Rainwater/Stormwater Harvesting: The precipitation falling

on urban areas is a much-neglected potential water supply.

Rainwater harvesting could supply up to 50% of household

water needs, but there are no major developments underway,

and any technology will most likely be limited to small scale

projects.









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EMERGING TECHNOLOGIES





EMERGING TECHNOLOGIES its strong reactivity destroys viruses and bacteria. A residual

amount of chlorine is left in the water to disinfect against any

further bacteria presence or growth in storage tanks.

Municipal Water Treatment







I

ncreasing population, manufacturing, and other influences

Issues for Emerging Residential Water Treatment Technology

tend to contaminate our water resources resulting in water

Water treatment concerns of homeowners depend on whether

that presents health hazards, use annoyances, and other

they receive water from an adequate municipal water treatment

aesthetically unpleasing characteristics based on the impurities

process or not. For those with an adequate municipal treatment,

it accumulates. These impurities are both inorganic and organic.

their concerns for residential water treatment are generally

Inorganics include radicals, minerals and small particulates

aesthetic. They want to rid the water of bad odor, taste, or color

ranging in size from one thousandth of a micron to over tens

and often to remedy the telltale signs of any chlorine treatment.

of micrometers. Some metals and non-metal complexes can

Chlorine is a problem because it is dangerous to handle and

be carcinogenic while other and their salts can corrode pipes Emerging

leaves a taste and odor. And worse, both chlorine and a by-

or inhibit soap action for washing. Organics include viruses,

product of its action (THM) have been found to be possible car- technologies feature

bacteria, algae, fungi, pollutants, parasites (Giardia, etc.) and

cinogens. Alternatives typically include either carbon granular

other substances from decaying leaves and animal byproducts.

water treatment installed at their faucet or buying bottled water. chemical-free

As pathogens they pose health problems. Even excess nitrates

Bottled water also makes use of a renovated water treatment processing, which

can produce harm in small babies. Viruses range from one hun-

technology, addressed below.

dredth to a tenth of a micrometer while bacteria go from a tenth

implies no chlorine

to tens of micrometers in size.

Homeowners that have no adequate municipal treatment must

treatment and its

increasingly rely on emerging ‘renovated’ water treatment tech-

The variety of sizes, nature, and chemical reactivity of these

water impurities prevent a single water treatment technology

nologies and are prime targets by companies that produce these. attendant problems

Typically, these homeowners get their water directly from well

from eliminating all possible impurities. Each technology has its

water or surface water like clean ponds or lakes. Other residents

own impurity types and sizes that it’s best at reducing. The clas-

live in areas of scarce and possibly contaminated water, as in

sic water treatment technologies are ultraviolet exposure, reverse

parts of China and India. They need water treatment that effec-

osmosis, ultra-filtration, micro-filtration, distillation, ozonation,

tively disinfects but also must eliminate toxic elements and waste

carbon adsorption and ion exchange.

components — they need ‘full treatment’ of their water.

Municipal water treatment systems prepare water for hom-

Emerging and Renovated Water Treatment Technologies

eowners by a 3-step process to achieve regulated contaminant

‘Full treatment’ residential water treatment has traditionally been

levels for harmful impurities. Their primary treatment screens

very costly to supply. But innovations in materials, techniques,

and prepares the water for the secondary treatment where fine

and designs have allowed companies to re-engineer water treat-

solids and the majority of contaminants are removed by using

ment technologies to increase effectiveness, and lower costs to

filters, coagulation, flocculation and membranes. Tertiary treat-

address their targeted consumers. These emerging technologies

ment involves pH adjustment, carbon treatment to remove taste

feature chemical-free processing, which implies no chlorine treat-

and smells, disinfection, and temporary storage to allow the

ment and its attendant problems. They must also offer reliabil-

disinfecting agent to work.

ity, easy maintenance, and a monitoring process to assure the

treatment is meeting its required contaminant levels reduction.

Disinfecting renders organic pathogens harmless for drinking.

Some of these key technologies cover the very small size limit

Traditionally, chlorine has been the disinfecting agent because



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EMERGING TECHNOLOGIES





to eliminate very small impurities such as noxious metals and Two more new material-based technologies perform ultra

other similar harmful entities. They can work in conjunction and micro filtration capabilities. Sponge filtration (e.g. Abtech

with other technologies like disinfecting technology to produce Industries), based on polymer technology, removes hydrocar-

a ‘full treatment’ process. Of course, the amount and sophistica- bons, bacterial pathogens, and fine sediments. An open-cell

tion in the choice of treatment depends on what type of danger metal foam structure (e.g. Metafoam) also allows for very small

the local water presents. particle filtration. Over half the world

The innovation in residential water treatment technology stems, Improved UV and Ozone-based Disinfectant Technologies population will face

one, from improvements to the efficiency and cost of the critical Disinfecting water has become big business. Both UV expo-

materials (films, membranes, foams) that afford small impurity

a very serious water

sure and ozonation replace chlorine treatment because they are

elimination and, two, in the generation and design of UV and particularly effective at destroying organic pathogens without shortage in the next

Ozone-based disinfecting technology. No dominant technology the bad effects of Chlorine. Improved design and generation of

has emerged — just efficiency and cost cutting improvements UV (e.g. Alantium, UV Pure Industries) for concentrated water

30 to 50 years

to existing technologies. Companies capitalize on their own exposure more readily destroys virus and bacteria at improved

renovated technology. They promote it as the essential feature in maintenance and cost. It is ideal for homes receiving untreated

their treatment process and complement it by other technologies water from wells and surface water. It can also supplement other

to assist in full treatment results where needed. technologies treating other impurities in a ‘full treatment’ process.



Key innovative technology processes based on materials im- Ozonation technology (e.g. Novazone, Ozonetech, MiOX)

provement are reverse osmosis (RO), ultra-filtration, micro-fil- benefits from improved discharge production of Ozone. Ozone

tration and ion exchange. is triatomic oxygen and unstable. It quickly decays to diatomic

Oxygen and a very reactive single oxygen atom. This atom’s

The reverse osmosis technology relies on a membrane that strong oxidizing ability readily destroys bacteria and patho-

passes only molecular water when impurity-laden water on one gens. Many bottled water companies disinfect their water

side of it is pressurized. Traditionally, these membranes were through an ozonation process.

very expensive. In order to supply the ‘filtered’ water, though,

the system must divert some 75% of the impure water yielding Lastly, more residential water treatment technologies will require

only one clean quart for every four quarts presented. Since its water impurity detectors that can test for a variety of impurities

water production rate is slow, the homeowner generally would and assure that residential water treatment systems maintain

allow the system to collect clean water in a tank over night for their required impurity reduction levels (e.g. Sensicore).

the next day’s use.

Still in the Lab: Nanotechnology to the Rescue Again

Another improved film or materials-based technology is a mem- More than 97 percent of the world water supply is saltwater,

brane for ion exchange. In this process dangerous metal ions in and with a world population expected to double in 40 years,

various minerals are chemically forced to exchange themselves over half the world population will face a very serious water

for harmless ones at the proprietary membrane surface. Its rate shortage in the next 30 to 50 years. Desalinization (remov-

of clean water production is fast enough to accommodate ap- ing salt from seawater) is currently a very expensive process,

proximately one litre/min demand and reduces storage require- but will become one of the biggest areas of growth in the near

ments (e.g. Pionetics — see private company profiles). term. Nanotechnology could lead to advanced water-filtering

membranes that could purify even the worst of wastewater.





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EMERGING TECHNOLOGIES





Nanotechnology — science and engineering at the molecular • Study of mixed metal oxide nanostructured materials for the

level — can make pores tiny enough to filter out the smallest destruction of biological toxins in surface water and ground-

organisms (viruses, e.Coli bacteria, heavy metals, etc.) in water, water, using photocatalysis and oxidation. The project will pro-

allowing clean water to pass through. Nanotech water-purifica- vide data for optimizing the use of these materials in various

tion technologies include photocatalytic materials, where water environments. The use of

passing through a nanomaterial is also subjected to ultraviolet

light, leading to the destruction of contaminants such as pes- • Development of whole-cell microbial biosensors to detect these renovated

ticides, industrial solvents and germs. Of all novel filtration minute metabolite excretions from newly-forming biofilms. technologies

technologies, driving the cost of desalinization down promises The project will examine the mechanisms of biological at-

to be among the most valuable potential achievement of nano- tachment to surfaces, identify its biochemical signals, and will increase in

tech. Nanotechnologies can also help make cheaper energy, in develop nanoscale sensors that can be applied to membrane

proportion to

the form of efficient solar cells, as the largest cost in water treat- surfaces, enabling optimized maintenance for water purifi-

ment is energy. cation membranes and significant extension of membrane consumers’ need

lifetimes.

Water researchers from leading Israeli and American institutions

and buying power

have targeted four cutting-edge nanotechnology projects that pro- From an investor perspective, investments in nanotechnologies,

vide extraordinary benefits for water purification, and have the as with most emerging technologies, should focus on the matu-

potential to be applied commercially within the next five years: rity and size of the end market, the relative technological risk of

the products or process and the time horizon to the company’s

1) Membranes and membrane processes profitability and potential exit (IPO, merger, sale, etc.). Rather

2) Biofouling and disinfection than investing in companies that develop technologies, investors

3) Contaminants removal should look at companies that make existing systems cleaner,

4) Environmental monitoring and sensors simpler, faster or cheaper.



The four targeted projects are: Summary of Technologies

Full treatment and disinfection processes for home use are still

• Development of new, porous polymer-based ultra-filtration expensive but are slowly becoming less so. Along with displac-

membranes with special coatings that exhibit higher flux and ing chlorination in some instances, the use of these renovated

higher resistance to contamination as well as robust molecu- technologies will increase in proportion to consumers’ need

lar sieving abilities. The project will create and test self-as- and buying power, and reduced costs – as is now happening.

sembling membranes with very stable transport channels that Continued and increased demand will depend on where people

reduce bio-fouling and may also be capable of self-cleaning. live, their purchasing power, and if they’re experiencing poorer

and dangerous water quality from the byproducts of increased

• Development of coatings with antimicrobial capabilities that manufacturing and population.

can minimize biological attachment and biofilm formation

that can be applied to current generation membranes that are

used for drinking water, wastewater and desalination.









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MARKET INTRODUCTION









WHY THE SECTOR IS BOOMING



• The U.S. drinking water infrastructure network spans over

Chapter 04

700,000 miles, more than four times that of the National High-

INVESTMENT OPPORTUNITIES

way System. However, the water infrastructure system contains

pipes laid more than a century ago. The natural effects of time and

Pipes laid in the 1920s the elements can require the pipes to be repaired or replaced.



must be replaced after • The American Water Works Association estimates U.S. water

100 years. Pipes utilities will need to invest $250 billion over the next 30 years

to replace aging pipes. The cost of pipes for new developments,

installed during the post- security upgrades, advanced treatment methods and other needs

may raise that amount to $500 billion.

World War II boom

wear out after only • The U.S. Environmental Protection Agency (EPA) estimate that

water and wastewater infrastructure repair costs may be as much

75 years. The oldest cast as $745 billion to $1 trillion over the next 20 years. The more

likely scenario is that the infrastructure will be replaced as it

iron pipes — laid in the

breaks down, rather than any major preventive strategy.

late 1800s —

• Clearly, the cost of water infrastructure replacement far exceeds

usually last 120 years. the financial capabilities of local water utilities, and requires a

strong commitment from not only utilities, but rate-payers and

government as well. For this reason and others, residential water

treatment will become a fast-growing complement to existing

government treatment initiatives.



• Disinfection Byproducts (DBPs) are formed when chemical disin-

fectants (e.g. chlorine) react with naturally occurring materials in

the water. Studies have shown a possible link between DBPs and

cancer, from high concentrations of DBPs. All chemical disin-

fectants cause DBPs. Disinfectants are used in treatment plants,

through the distribution system pipes all the way to consumers’

homes. Several safer treatment technologies are now available (or

in development) and can be installed by the residential user.



• The move to fortify the water infrastructure has become an even

more pressing need since September 11, 2001, as utilities have

placed considerable efforts and made significant investment in

protecting water supplies from possible security threats. In the

U.S., water suppliers have spent $2 billion to address basic security

needs, including improved fencing, lights, alarms and locks.

Source: American Water Works Association; Red Herring, Inc.



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INVESTMENT OPPORTUNITIES





INVESTMENT OPPORTUNITIES Investors should be prudent, therefore, before diving into the

sector, as many of these emerging companies have innovative







T

wo significant phenomena are now driving water technolo- products, but they may never catch on, while more established

gies as an investment theme throughout the world. Firstly, players increase their international footprint. The global water

more governments are privatizing their water infrastruc- market will still be large enough during the remaining decade to

Another tures, which is providing a serious boost to industrial groups allow for several competing treatment and desalinization tech-

such as Suez and Veolia Environnement and the hundreds of nologies. The greatest opportunities have yet to be addressed

phenomenon is smaller companies supplying local markets. According to the and the leaders are still being formed.

the rapid pull World Bank, outsourcing and privatization in the water sector

Other Investment Opportunities

are set to double and reach 36% of the market by the end of

by industry and the decade. Historically, the water infrastructure market de- In addition to investment made directly into public companies,

pended only on the state, but now is moving toward a mix of investors can participate in the growth of the water sector by

consumers for investing in funds and indices that invest directly into water

private and public players. The second significant phenomena

in-house water is the rapid pull by industry and consumers for in-house water companies.

purification and treatment systems. Water has traditionally been

purification and Criterion Investments Ltd., an affiliate of VenGrowth Asset

of acceptable quality for industry and residents and the need for

treatment systems treatment was minimal. Increasingly, however, water treatment Management Inc., is a Toronto fund recently launched by the

is not an option or luxury for many individuals, it is a necessity. Criterion Water Infrastructure Fund, the first equity fund in

Canada that invests across many sectors in the global water

industry. The fund is the Canadian version of the Pictet Global

4.1 PUBLIC COMPANY SUMMARY Water Fund, an equity fund overseen by Pictet Asset Manage-

Public water technology companies can be divided into two ment SA of Switzerland. The fund is available as both a cur-

groups (see tables on pages 44-45), large established players rency-hedged and unhedged solution for investors. The Pictet

(typically with water being one of many business units) and Water Fund is down 1.8% so far this year, against 1.84% for

emerging companies. Emerging companies are still establish- its benchmark, the MSCI World Equities Index, according to

ing their footprint on a national and eventually international Global Water Intelligence.

scale. Their higher expected growth is translated into a more

volatile stock performance and valuation ratios (e.g. Price IP Group (LSE: IPO) (www.ipgroupplc.com) is an intellectual

Earnings Growth (PEG) ratio of 2.2 vs. 1.5 for established property (IP) commercialization company based in London, UK

players). Enterprise Value to EBITDA (EV/EBITDA) — used that specializes in commercializing university technology. It’s

to determine the value of a company — is in line with current core business is through the commercialisation of intellectual

technology sector valuations (10-12x). However, the high aver- property originating from research intensive institutions - man-

age PEG ratio of the Emerging Water Technology Companies aging the process from finding suitable intellectual property to

table (see page 45) indicates a market in which investors have commercialize. The group has formed long-term partnerships

higher expectations than the market may be able to deliver. with ten universities. IP Group recently launched a new subsid-

PEG ratios are a method of determining the relative trade-off iary, Modern Water Limited to establish and exploit a portfolio

between the price of a stock, the earnings per share (EPS), and of water technologies to address the global problems of eco-

the company’s expected future growth. Typically, a PEG ratio nomic availability of fresh water and the treatment and disposal

of 1 represents a reasonable trade-off between price of the of waste water. Existing Investments include a 30% stake in

share and growth prospects. Ratios above 2 are considered to Surrey Aqua Technologies Limited, a spin-out from the Uni-

be relatively expensive for the expected growth.

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INVESTMENT OPPORTUNITIES





versity of Surrey. Surrey Aqua has developed a unique Reverse solutions. It contains 20 stocks. The ticker for the ISE-B&S

Osmosis process to purify salt water that has significantly lower Water Index is HHO. It closed at 75 on March 12, 2007.

costs, using less energy. It is based on technology developed

at the Centre for Osmosis Research & Applications (CORA), • S&P recently launched a new Global Water Index, compris-

University of Surrey. ing 50 companies (with minimum market cap. of $250M) in

14 countries (no stock has a weighting of over 10%), in the

IP Group also holds a 16.6% stake in CYMTOX Limited, a Water Utilities & Infrastructure, and Water Equipment &

Cardiff-based business which has a new water technology that Materials sectors.

CYMTOX’s technology monitors acute water toxicity on a continuous, real time basis.

The CYMTOX technology is a water monitoring device that

has been proven to acts like a ‘modern day canary’, constantly checking a very wide 4.2 PRIVATE COMPANY PROFILES Abtech

Industries ........... 32

identify 1/1000th of range of toxicity and warning of any suspicious changes. The The water technology industry is still immature, unlike the more

Altantium ........... 33

core technology, which is based on the science of biolumines- developed, and better-funded, software and communication sec-

a lethal dose cence, is in the process of being fully patented. The technology tors. Unlike most of the big plays that have already been made KX Industries ...... 34



of cynaide in water in has been proven to identify 1/1000th of a lethal dose of cyanide in those sectors, it is still ‘open pastures for startup firms in all Metaform

in water in just 3 seconds compared to currently available prod- areas of clean technologies. VCs continue to look for compa- Technologies ....... 35

just 3 seconds ucts that detect in 15-120 minutes. nies with products that can facilitate the market rather than MIOX ................. 36

technologies looking for a market. Water technology companies Novazone............ 37

Indices with strong management teams are always at the top of any

Ozonetech .......... 38

Below are some of the more popular indices designed to track VCs list. Scientists or engineers of water tech companies need

various water-related investment opportunities worldwide: to be complemented by very good management. Investors also Pionetics ............ 39

look for capital-efficient companies, able to adapt to a chang- Sensicore ........... 40

• Palisades Water Index: This index was designed to track the ing business model before it goes public or gets acquired. The

Sylvan Source ..... 41

performance of companies involved in the global water indus- product should be one with many market opportunities in order

try, including pump and filter manufacturers, water utilities to provide attractive valuations during “exits” (ways for the in- UV Pure

Technologies ....... 42

and irrigation equipment manufacturers. The ticker symbol vestor to recoup their investment) and with the ability to define

Vortex

for the Palisades Water Index is ZWI. The index was set the market niche during the next four to seven years. Corporation ........ 43

at 1000 as of December 31, 2003. It closed at 1639 on

March 12, 2007. The following pages provide a summary of a few private com-

panies with potentially disruptive technologies in the emerging

• Dow Jones U.S. Water Index: Composed of approximately residential water treatment market. We believe there is a great

23 stocks, this barometer climbed from 500 to 800 over the opportunity for these companies to capture a significant share

12 months ending December 31, 2005. The ticker for the of the global water treatment market during the next few years.

Dow Jones Water Index is DJUSWU. It closed at 698 on

March 12, 2007.



• ISE-B&S Water Index: Launched in January 2006, this new

index represents water distribution, water filtration, flow tech-

nology and other companies that specialize in water-related







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ABTECH INDUSTRIES (http://www.abtechindustries.com), based ALTANTIUM (http://www.atlantium.com) is an Israel-based com-

in Scottsdale, Arizona, is an environmental technologies firm pany that develops and sells water disinfection solutions for large

that has spent seven years and $16 million developing its Smart industry (food and beverage, microelectronics, pharmaceuticals)

Sponge filtration technology designed to absorb oils, PCBs and and municipal water companies. Atlantium helps customers build,

other toxins while allowing water to pass through. Its products expand and operate water-intensive processes using UV water

are based on polymer technologies capable of removing hydro- disinfection for microbe inactivation, at industrial and municipal

carbons, bacterial pathogens, sediment and other foreign elements water flow rates. Atlantium products are used for disinfecting

from still or flowing water. The company has patented technol- drinking water and for providing biological treatment for waste

ogy that absorbs hydrocarbons from water. Currently being used water (tertiary treatment). Founded in 2003, Atlantium’s patented

in over 28 states, AbTech’s filtration systems, fitted with their and patent-pending technology introduces a breakthrough ap-

Smart Sponge® technology, are the only products on the market proach to water disinfection, called “Hydro-Optic Disinfection”(

that do not require electricity or moving parts to capture trash HOD), a UV-based disinfection technology (no chemicals) that

and debris, absorb oil, grease and other hydrocarbons, and kill disinfects, in real-time, high flow rates of water. This is particular-

bacteria such as E. coli and fecal coliform on contact. AbTech’s ly important in water treatment for water-born pathogens, such

technology is the only non-toxic, fully recyclable filtration system as Cryptosporidium and Giardia, where conventional water treat-

that destroys bacteria at the street level. The U.S. Environmental ment methods simply do not work. The company has secured

Protection Agency has ordered that all cities with populations $30 million in two rounds of financing.

of more than 10,000 must stop grease and oil-contaminated

storm-water from running into lakes, rivers and other waterways Company Information:

by 2008, which is a significant opportunity for the company. In • Address: Har Tuv Industrial Park, POB 11071 Bet Shemesh

November 2006, the Company completed a $6.8 million financ- 99100, Israel

ing with Madoff Securities and other institutional investors. • Phone: (972) 2-992-5001

• Fax: (972) 2-992-5005

Company Information: • Email: info@atlantium.com

• Address: 4110 N Scottsdale Rd, Suite 235, Scottsdale, AZ 85251 • CEO: Ilan Wilf

• Phone: (480) 874-4000 • Investors: The largest shareholders are Aurum Ventures and

• Fax: (480) 970-1665 Elron Electronic Industries Ltd. (approx. 32%). Aurum Ventures MKI

• Email: info@abtechindustries.com is a holding company managing Morris Kahn’s investments in Israeli-

• CEO and Founder: Glen R. Rink related, innovative start-ups. Aurum Ventures focuses on opportuni-

• Investors: The primary shareholders are the founders and ties in the Life Sciences, Biotechnology and Cleantech industries.

Madoff Securities. • Board of Directors:

• Board of Directors: None mentioned - Benjamin Khan (Chairman): son of Morris Kahn (see above)

- Elad Frenkel: Director of Business Analysis, Elron Aurum Ventures









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KX INDUSTRIES, L.P. (http://www.kxindustries.com), based METAFOAM TECHNOLOGIES (http://www.metafoam.com) Located

in Orange, Connecticut operates the world’s largest solid-state in Montreal, Canada, Metafoam is manufacturing innovative

extrusion facility for the production of activated carbon filters open-cell metal foams. Metafoam’s basic technology comes from

and sells more carbon filters to more OEMs than anyone in the a discovery made at the Industrial Materials Institute (IMI) of

world. Founded in 1989, the company developed a new method the National Research Council of Canada (NRC). The IMI-NRC

of producing high-volume, high-quality, low-cost filtration process leads to metal foams with the highest surface area in the

media. Nearly 80% of the company’s production is custom- industry, the lowest production costs and a greater repeatabil-

designed filters for OEM customers. The remainder is sold as ity. Metafoam’s technology provides for the lowest production

standard product through a network of distributors. Due to the costs, greater control on several key product parameters, and

booming residential market, the sales of carbon cartridges to highest specific surface area. Metafoam is targeting the water

purify drinking water is expected to exceed $6 billion world- purification market with foam products using a copper-silver

wide in 2009, according to McIlvaine Co. The total cartridge foam that acts against algae, fungi, and bacteria (e.g. Legionella,

market in 2009 is expected to exceed $14 billion. Residential is E. coli, and streptococcus) found in industrial, drinking, tap and

the largest application followed by the commercial and institu- “breathable” water from spas, shower heads and cooling towers.

tional. Asia will be the fastest growing region. Preliminary tests conducted at external laboratories show that all

E. coli bacteria contained in water are killed after 15 minutes of

Company Information: contact with a copper-silver foam. In effect, it is known that cop-

• Address: 269 South Lambert Road, Orange, Connecticut 06477 per-silver ionization acts more quickly and efficiently against this

• Phone: (203) 799-9000 kind of bacteria in combination with chlorine than chlorine alone

• Fax: (203) 799-7000 and, except for chlorination, copper remains one of the efficient

• Email: tburke@kxindustries.com methods to kill bacteria in drinking water. Considering the vari-

• CEO: Evan E. Koslow ous properties of copper and silver, it is clear that copper-silver

• Investors: Limited Partnership between Exxon Chemical Corporation foams have enviable characteristics to purify water.

and Koslow Technologies Corporation Company Information:

• Board of Directors: None mentioned • Address: 75 De Mortagne Blvd., Suite 112

Boucherville (Quebec), Canada J4B 6Y4

• Phone: (450) 641-5406

• Fax: (450) 641-5802

• Email: info@metafoam.com

• Founder: Dominic Pilon, CTO

• CEO: Richard Carter

• Investors: The primary shareholders are BDC Venture Capital,

FIER ID, MSBi Capital and M&M Investment.

• Board of Directors:

- Michel Brûlé (Chairman): President, M&M Investments

- Richard Carter: CEO, Metafoam Technologies

- Dominic Pilon: Founder, Metafoam Technologies

- Réjean Asselin: Director, BDC Capital

- Daniel Cyr: Director, FIER ID and ID Capital







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MIOX (MIxed-OXidant technology), based in Albuquerque, NOVAZONE, INC. (http://www.novazone.net), based in Liver-

NM, applies patented technology to manufacture products more, CA, provides ozone-based solutions to improve the fresh-

that can provide clean, safe water, anywhere at any time. The ness and safety of food and water. Novazone couples applied

technology was originally developed in 1982 under military food science with patented ozone technologies to provide an

and federal contracts with the goal of replacing traditional environmentally friendly means of reducing spoilage and air-

water treatment chemicals. For over a decade MIOX products borne pathogens without the use of harmful chemicals. Founded

have been used by hundreds of municipalities across the United in 1996, the company has approximately 250 in 15 countries,

States to treat water to EPA (Environmental Protection Agency) including Coca-Cola, Pepsi Cola, Sun Pacific, Orchard View

standards. MIOX eliminates the need to store and transport Farms, Paramount Farms, Wilson Batiz, Safeway, Colgate-Pal-

dangerous chemicals such as chlorine gas, which is considered molive, Procter & Gamble, and Wyeth Pharmaceuticals. Nova-

by the Department of Homeland Security to be one of the most zone’s solutions maintains the freshness and safety of food and

significant threats to community safety. The company’s treat- water during sourcing, transportation and distribution of these

ment capacity ranges from 1/2 liter to over 1 billion gallons (3.8 products to prevent the risk of both accidental and intentional

million cubic meters) of water per day. MIOX has over 1,300 contamination from microorganisms, pests and chemicals. No-

capital equipment systems installed, and is currently sold in over vazone had revenues of under $5 million and had 28 employees

40 countries. MIOX is pursuing international markets where in 2004.

there is a rapidly growing demand to treat water in a cost-effec-

tive approach. MIOX’s distributed architecture allows end users Company Information:

to treat their water at the point of use. • Address: 2575 Collier Canyon Road, Livermore, CA 94551

• Phone: (925) 454-0303

Company Information: • Fax: (925) 454-0333

• Address: 5601 Balloon Fiesta, Parkway NE, Albuquerque, NM 87113 • Email: busdev@novazone.com

• Phone: (505) 343-0090 • CEO: David Cope

• Fax: (505) 343-0093 • Investors: The primary shareholders are Chrysalix Energy,

• Email: info@miox.com Foundation Capital and Grauer Capital

• CEO: Carlos Perea • Board of Directors:

• Investors: The primary shareholders are Flywheel Ventures, - Dr. Frederick L. A. Grauer (Chairman): Senior Advisor to

Sierra Ventures, Tao Capital and New Mexico Community Capital. Barclays Global Investors

• Board of Directors: - David Cope: CEO Novazone

- David Albin: Partner, Natural Gas Partners - Greg Sullivan: Managing Director, Chrysalix Energy

- Bill Enloe: President, Los Alamos National Bank - Warren Weiss: General Partner, Foundation Capital

- Jeff Loomans: Partner, Sierra Ventures

- Trevor Loy: Managing Partner, Flywheel Ventures

- Carlos Perea: CEO, MIOX Corporation









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OZONETECH (www.ozonetech.com) is a Swedish company PIONETICS (http://www.pionetics.com), based in San Carlos, CA,

founded in the early nineties. The company develops and sells develops innovative water purification products that improve

products based on proprietary ozone generation technology to water quality for residential, commercial and industrial applica-

purify, disinfect and deodorize air and water. The core technology tions. Pionetics has developed a unique patented ion-exchange

was patented in 1996 and has since then been significantly devel- membrane technology utilizing electricity for regeneration using

oped and improved, resulting in several new patents allowing for simple electrochemical cells. This is the first new water treat-

increased reliability, efficiency, reduced size, low energy con- ment technology to emerge in decades that is environmentally

sumption and maintenance cost. The company’s ozone monitors sound and is ideal for deployment in countries where water is

analyze ozone in water plants, critical semi-conductor processes a scarce resource. The core of the product line — a replaceable

and other applications that require long-term stability and high cartridge containing the proprietary membrane — selectively

accuracy. The primary use of the systems is to purify, disinfect and removes priority pollutants in drinking water such as arsenic,

deodorize air and water. Its water applications include drinking nitrate, chromate and other harmful chemical ions, softening

water — it is estimated that ozone is now used in over 3000 mu- water without the addition of salt. Compared to existing tech-

nicipal drinking water installations world wide. The company’s nologies, Pionetics’ systems are half the size an use one tenth the

treatment offers a number of advantages over the traditional use water of traditional systems to produce clean water and elimi-

of chlorine, most notably is the ability to kill bacteria and inactive nate the need for hazardous chemicals (or salt) for regeneration.

viruses more effectively than any chemical. It also reduces heavy The company has signed an initial development and distribu-

metals found in drinking water, such as iron and manganese, to tion agreement with a recognized leader in the residential water

safer levels through oxidation, in addition to improving the taste, treatment market and is targeting additional OEM manufactur-

odor and appearance of water. This process is environmentally ers of water treatment equipment. In February 2005, the com-

friendly, and has oxygen as its main by-product. pany completed a $6.4 million in Series C financing, bringing its

total funding to $11 million.

Company Information:

• Address: Lumaparksvägen 9, SE-120 31 Stockholm, Sweden Company Information:

• Phone: 46-(0)8-714 07 01 • Address: 151H Old County Road , San Carlos, CA 94070

• Fax: 46-(0)46-286 56 69 • Phone: (650) 551-0250

• Email: info@ozonetech.com • Fax: (650) 551-0251

• Investors: Ozone Tech Systems is owned by a group of well • Email: info@pionetics.com

established international investors and key employees. • Co-Founders: Dr. Eric Nyberg, Gordon Mitchard, Glenn Kawaguchi

• Board of Directors: None mentioned • CEO: Gordon Mitchard

• Investors: The primary shareholders are EPCOR Water Ser-

vices, Firelake Strategic Technology Fund, LP, NGEN Partners, Pan-

gaea Ventures Fund, RockPort Capital Partners, Topspin Partners,and

Unilever Technology Ventures Fund BV.

• Board of Directors: None mentioned









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SENSICORE (http://www.sensicore.com), based in Ann Arbor, SYLVAN SOURCE (http://www.sylvansource.com) Headquar-

MI, has developed a lab-on-a-chip multi-sensor device for a tered in Sunnyvale, California, Sylvan Source is a provider of

variety of water and wastewater applications — from process ultra-clean water systems. Founded in December of 2003, the

control to environmental monitoring. The core technology is a company’s products produce breakthrough water quality that

micro-sensor incorporating chemical selective sensors and physi- eliminates the use of chemicals, filters, and membranes to as-

cal measurement devices on a single silicon chip that can chemi- sure consistent water quality. The company has grown out of

cally profile a sample as small as a drop on a real time, multi- a private marketing, research and development effort which

plexing basis. Applications include point-source or lab-based combines known, proven distillation and steam separation

simultaneous, multi-parameter water sample measurement, trace technologies with innovations and inventions unique to Sylvan

detection and speciation of heavy metal contaminants including Source. Sylvan Source delivers a product that reduces more

arsenic, early warning, real-time monitoring of potable water contaminants more effectively than other technology without

distribution systems and real-time wastewater discharge moni- the need for cleaning or replaceable components such as filters,

toring. The main markets are handheld instruments for point- membranes or cartridges.

source testing, online monitoring systems and point of use/point

Company Information:

of entry cartridges.

• Address: 285 N. Wolfe Road, Suite 103, Sunnyvale, CA 94085

Company Information: • Phone: (408) 736-7186

• Address: 755 Phoenix Drive, Ann Arbor, MI 48108 USA • Fax: (408) 736-7654

• Phone: (734) 528-6300 • Email: info@sylvansource.com

• Fax: (734) 528-6301 • CEO: Laura Demmons

• Email: sales@sensicore.com • Board of Directors:

• Co-Founders: Richard Brown, Dean of Engineering at the University - Laura Demmons (Chairwoman): Founder and CEO, Sylvan Source

of UtahMitchard, Glenn Kawaguchi - Robert J. Frankenberg: chairman of Kinzan, formerly CEO of

• CEO: Malcolm Kahn Novell and Encanto Networks

• Investors: The primary shareholders are Ardesta, Firelake - Carl Bronstein: CEO, BronsteinVentures

Capital Management, NGEN Partners, Technology Partners and - John G. Sylvia: founding partner of Aqua International Partners

Topspin Partners. - Lawrence H. Dubois: Corporate VP and head of the Physical

• Board of Directors: Sciences Division of SRI International

- Malcolm Kahn: CEO, Sensicore

- Peter Grubstein: NGEN

- Paul Wimer: Partner, Topspin; Chairman and CEO

of WHITTMAN-HART

- Ira Ehrenpreis: Partner, Technology Partners









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UV PURE TECHNOLOGIES (http://www.uvpure.com), based in VORTEX CORPORATION (http://www.vortexpurewater.com), based

Toronto, Canada has developed and commercialized a recent in Prescott, AZ is a global innovator of chemical-free air and

technology to disinfect small drinking water applications. After water purification products for consumer and commercial use.

three years of R&D, the company unveiled the Hallett™ with Its product portfolio is based on a patented technology platform

patented Crossfire Technology™, the world’s only self-cleaning, that reproduces the photo-oxidation process naturally occurring

self-monitoring, fail-safe water system. UV Pure’s Hallett sys- in the environment. The Vortex water purification system goes

tems are used for residential, municipal and commercial water beyond simple filtration to catalyze ozone by ultra-violet light,

applications, for up to 5,000 households. Crossfire Technology destroying contaminates while infusing the water with fresh

Provides the Most Effective UV Treatment by incorporating two oxygen. The Company’s portable unit delivers quality drinking

proprietary high-output UV lamps, with elliptical reflectors, re- water from standing, unsanitary sources for remote use,

sulting in the highest UV dose possible to deactivate pathogens whether in a recreational or emergency preparedness/disaster

and provide safe drinking water. relief situation.



Company Information: Company Information:

• Address: 60 Venture Drive, Unit 19, Toronto, • Address: 400 Prescott Lakes Parkway, Prescott, AZ 86301

Canada, M1B 3S4 • Phone: (928) 777-9339

• Phone: (416) 208-9884 • Email: info@vortexpurewater.com

• Fax: (416) 208-5808 • Founder: Rolf Engelhard

• Email: info@uvpure.com • CEO: Ray Denkewicz

• Founder: Ron Hallett • Investors: Currently funded by the U.S. Department of

• CEO: Richard Van Sant Homeland Security — Advanced Research Projects Agency Small

• Investors: Investeco Capital Corp. and other private equity investors Business Innovation Research (HSARPA SBIR)

• Board of Directors: None mentioned • Board of Directors: None mentioned









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4.3 COMPARABLE TABLE

Established Water Technology Companies Emerging Water Technology Companies

Mkt P/E EV/ EV/ Mkt P/E EV/ EV/

Shares Cap Last P/E PEG Sales EBITDA Shares Cap Last P/E PEG Sales EBITDA

Symbol Name Price (M) ($M) year Current Ratio P/S (TTM) (TTM) Symbol Name Price (M) ($M) year Current Ratio P/S (TTM) (TTM)

SZE Suez Inc. 54.88 1270 69698 14.5 16.6 0.9 1.2 1.4 9.1 TTEK Tetra Tech Inc. 18.87 58 1094 28.8 21.4 1.9 1.1 1.1 12.6

VE Veolia 77.55 393 30483 30.3 21.2 1.7 0.8 1.3 9.3 RBN Robbins & Myers 43.25 17 736 32.3 16.6 1.6 1.2 1.3 11.1

Environnement SA Inc.

DHR Danaher Corp. 70.53 309 21801 20.3 16.7 1.3 2.3 2.5 13.5 INSU Insituform 19.96 27 544 22.3 17.1 2.4 0.9 0.9 9.3

Technologies

TMO Thermo Fisher Sci- 48.24 420 20262 57.6 17.1 1.3 5.4 5.9 33.3

entific SJW SJW Corp. 39.25 18 717 18.9 26.3 2.8 3.8 4.7 13.1

ITT ITT Corporation 61.68 182 11213 19.9 16.1 1.4 1.4 1.4 10.6 AMN Ameron Inc. 69.32 9 629 10.9 N/A N/A 1.2 1.1 7.9

CLX Clorox Co. 64.10 151 9695 21.4 17.5 1.9 2.0 2.5 10.7 LAYN Layne Christensen 37.76 15 581 22.5 20.3 0.6 0.8 1.0 7.9

FLR Fluor Corp. 92.35 88 8121 31.3 19.4 1.3 0.6 0.5 13.8 BMI Badger Meter Inc. 26.30 14 373 39.3 17.0 2.1 1.6 1.9 15.4

PLL Pall Corp. 38.41 123 4731 28.6 19.9 1.9 2.2 2.3 13.2 LNN Layne Christensen 29.91 12 348 25.7 19.2 2.2 1.5 1.5 14.1

ASH Ashland Inc. 62.15 63 3893 11.2 15 N/A 0.5 0.4 10.4 GRC Gorman Rupp 31.83 13 425 22.3 16.4 N/A 1.6 1.5 12.2

MIL Millipore Corp. 73.11 54 3943 40.9 18.3 1.5 3.2 4.2 18.2 NWPX Northwest Pipe 37.68 7 259 14.0 12.4 1.3 1.0 1.3 13.1

Co.

NLC Nalco Holding Co. 24.82 143 3556 36.8 18 2.3 1.0 1.9 10.4

CECE CECO 14.05 11 161 58.5 16.5 N/A 1.3 1.4 25.5

FLS Flowserve 58.23 57 3299 28.8 14.2 1.6 1.1 1.3 11.1

Environmental

PNR Pentair Inc. 30.50 100 3047 16.8 13.3 1.5 1.0 1.2 9.2 Corp.

WTR Aqua America Inc. 22.78 132 3015 32.6 26.5 2.6 5.7 7.7 14.4 YORW York Water Co. 16.70 10 175 28.7 23.52 3.3 6.6 8.8 16.3

IDXX Idexx Labs 87.86 31 2736 30.9 24.8 2.0 3.7 3.6 16.5 MPR Met-Pro Corp. 15.32 11 172 24.3 17.4 1.2 1.9 1.9 14.8

URS URS Corp. 43.35 53 2276 19.8 15.7 1.3 0.5 0.6 8.4 ARTNA Artesian Re- 20.05 6 121 20.6 20.5 1.5 2.7 4.8 11.9

sources Corp.

MWA Mueller Water Prod- 14.27 115 1636 20.6 15.3 1.7 0.9 1.4 7.9

ucts PNNW Pennichuck Corp. 23.56 4 99 174.5 34.7 5.4 4.0 5.8 19.8

ITRI Itron Inc. 67.92 26 1749 52.9 21.4 1.2 2.7 2.8 16.8 EEI Ecology 11.97 4 49 18.9 N/A N/A 0.6 0.5 5.1

Environment

CLC Clarcor Inc. 31.67 51 1622 20.1 16.5 1.4 1.8 1.7 10.6

OICO OI Corp. 12.10 3 35 15.0 N/A N/A 1.2 0.7 5.7

WTS Watts Water 39.13 39 1508 17.9 14.1 1.1 1.2 1.3 9.4

Technologies COHT Cohesant 7.35 3 24 15.2 N/A N/A 0.9 0.9 7.6

Technologies Inc.

VMI Valmont Industries 58.60 26 1504 24.6 17.0 1.2 1.2 1.3 11.2

Inc. BIW BIW Ltd. 16.80 2 28 43.5 N/A N/A 3.0 4.7 16.7

SXC Stantec Inc. 27.95 46 1272 24.7 N/A N/A 2.1 2.0 12.7 CLWT Euro Tech 2.79 8 23 45.0 N/A N/A 0.8 0.6 11.2

19 1293 36.1 26.4 1.5 4.3 4.1 17.6 Holdings Co.

DNEX Dionex Corp. 67.71

23 1063 18.9 14.4 0.6 1.9 1.9 9.7 Average* 26.7 19.9 2.2 1.9 2.3 12.6

FELE Franklin Electric Co. 46.21

27.4 18.1 1.5 2.0 2.3 12.8 Median 23.4 18.3 2.0 1.2 1.3 12.4

Average*

24.6 17.0 1.4 1.6 1.8 10.9 * does not include PNNW in calculation of P/E Last Yr

Median

* does not include PNNW in calculation of P/E Last Yr Source: Computershare, Bloomberg



Source: Computershare, Bloomberg









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4.4 FINANCING ACTIVITY Pure Water Solutions and Sunlight Systems with total sales

of $25 million. With these acquisitions, the company aims to

Recent M&A Activity

expand the Division’s service portfolio for activated carbon

One of the most aggressive water technology players and ac-

water treatment. Envirotrol, which operates a carbon reactiva-

quirers in this sector is General Electric (NYSE:GE), which has

tion plant, enables Siemens Water Technologies to double its

been involved in a series of major water acquisitions during the

carbon reactivation capability. The acquisition of Pure Water

past four years. After buying BetzDearborn and Osmonics ear-

Solutions of Hubbard, Ore., helps Siemens to expand its range

lier in the decade, GE acquired Ionics, one of the largest remain-

of deionization (SDI) products. The SDI method supplies ul-

ing independent players in the industry, in late 2004. In March

tra-pure water for laboratories and the microelectronics indus-

of 2006, GE acquired industry-leading membrane manufacturer

try as well as for other industrial applications.

Zenon Environmental of Canada for $656 million. Also in late

2004, Siemens, the German industrial giant, acquired USFilter

• In December, 2006 Pentair (NYSE:PNR) announced that it

from Veolia for $993 million. USFilter was the largest and most

would acquire the assets of Jung Pumpen (“Jung”), a leading

diverse water treatment and purification equipment company in

German manufacturer of wastewater products for the munici-

the U.S. Siemens became one of the major players in the inter-

pal and residential markets: water re-use products, submers-

national water business, and the company continues to make

ible wastewater and drainage pumps, wastewater disposal

smaller but additive acquisitions.

units and tanks. The company considers the wastewater mar-

ket as an attractive growth opportunity, especially in Eastern

Not all deals are this large, as the following list demonstrates

Europe, where environmental considerations, new regulations

some of the recent M&A activity in the water treatment sector.

and improving infrastructure are accelerating the connection

rates of homes to municipal infrastructure. The transaction is

• In April, 2007, Cantel Medical Corp. announced that its Mar

subject to receipt of approval from the German Federal Cartel

Cor Purification division completed the purchase of GE Water

Office and is expected to be completed in early 2007. No ad-

& Process Technologies’ water dialysis business. With approx-

ditional terms were disclosed.

imately 1,800 installations in North America, the acquisition

expands Cantel’s water treatment division by 50%. The terms

• In May 25, 2006, Veridium Corporation (OTC BB: VRDM)

of the transaction were not disclosed.

announced its intention to acquire the stock of GreenWorks

Corporation and GS CleanTech Ventures, Inc. GS CleanTech

• In March, 2007, Pentair (NYSE:PNR) announced the acquisi-

Ventures owns about 10% of the equity of Ovation Products

tion of Porous Media, a privately held Minnesota company

Corporation. Ovation Products Corporation has developed

with manufacturing operations in both Minnesota and Texas.

and patented a unique water distillation appliance that ad-

Pentair is a diversified operating company headquartered in

dresses large, global markets for clean water and sanitation.

Minnesota. Its Water Group sells products and systems used

Pursuant to the acquisition agreements, Veridium agreed to

in the movement, treatment and storage of water. The pur-

assume about $1.9 million in debt issued by GreenShift and

chase price is approximately $225 million or, adjusted for tax

issue GreenShift preferred stock equal to 10% of Veridium’s

benefits, 9.7 times 2007 expected EBITDA.

issued and outstanding capital stock in return for substantially

all of the stock and assets of GreenWorks and GS CleanTech

• In January 2007, Siemens Water Technologies announced

Ventures. After the transaction, Veridium’s GreenWorks divi-

that it recently acquired four companies in the U.S. in order to

sion is expected to have annualized revenues in excess of $20

supplement its product portfolio for disinfection and ultra-

million and in excess of 10% EBITDA margins.

pure water solutions. Siemens has taken over Envirotrol, CEC,



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• In September, 2006, Blue Water Technologies, Inc. acquired plies. This product concept is currently undergoing national

Applied Process Technology Inc., based in Conroe, TX. Blue certification sanctions for multiple uses and applications

Water is a nearly four year old privately held company, which already established through proto-type and neutral laboratory

originated as a technology transfer from the University of Idaho testing. The terms of the transaction were not disclosed.

for advanced phosphorus removal. Applied Process is a 13 year

old Texas Company which sells filtration equipment into the • In April, 2006, Axel Johnson, Inc., the North American oper-

municipal and industrial water treatment marketplace under ating arm of the Sweden-based Axel Johnson Group, an-

the brand name Centra-flo™. According to the General Manag- nounced the acquisition of Kinetico Inc., one of the world’s

er, the combined forces of the companies will allow significant leading manufacturers of residential, commercial, industrial

growth opportunities in the expanding water treatment market- and municipal water treatment systems. Axel Johnson is a pri-

place. The terms of the transaction were not disclosed. vate company with interests in the energy and environmental

sectors. Kinetico will become part of the company’s AxWater

• In July, 2006, The Dow Chemical Company (NYSE:DOW) Group, where it joins Parkson Corp., a leading supplier of

completed its acquisition of Zhejiang Omex Environmental water and wastewater treatment systems for municipal and

Engineering (OEE). OEE is a premier water treatment and industrial applications. The terms of the transaction were not

design company, specializing in pure and ultra pure water ap- disclosed.

plications: Ultrafiltration (UF), Membrane Bio-Reactor (MBR)

membranes, and Electrodeionization (EDI). These technologies • In May, 2006 Puronics, Inc. headquartered in Livermore, CA,

will be included in the Dow Water Solutions portfolio, along announced that it had acquired the Ionics Consumer Wa-

with existing product offerings in reverse osmosis and ion ter Group from GE Water & Process Technologies, a unit

exchange.Water purification solutions from Dow are used for of General Electric Co. The Ionics Consumer Water Group,

water treatment applications, including industrial and mu- founded in 1947, is a U.S.-based manufacturer of home and

nicipal water treatment, production of ultra pure water and commercial water treatment products. GE acquired the Ionics

drinking water purification. The terms of the transaction were Consumer Water Group through its acquisition of Ionics, Inc.

not disclosed. In September 2006 The Dow Chemical Com- in 2005. The Ionics consumer product portfolio includes a

pany announced the formation of Dow Water Solutions, a broad range of water treatment products: water conditioning,

business unit designed to advance the science of desalination, filtering, microfiltration, ultrafiltration, bacteriostatic carbon

water purification, contaminant removal and water recycling. filtration, reverse osmosis and ultraviolet disinfection. The

terms of the transaction were not disclosed.

• In April, 2006, Ecoloclean Industries, Inc.’s wholly owned

subsidiary, Aquatronics Industries, Inc. of Riverside, R.I., • In May 22, 2006, Close Brothers Private Equity announced

acquired the “Bio-Catalytic” water purification patent rights, the acquisition of the industrial water chemicals business from

which provides the company exclusive manufacturing rights Chemtura Corp. (NYSE:CEM) for $85 million. The busi-

to these products. Aquatronics Industries has been engaged in ness will be renamed BWA Water Additives. BWA is a global

the methodology of wastewater and drinking water remedia- supplier of niche speciality chemicals used in a wide range

tion for over 20 years, with primary focus on the need to re- of industrial water treatment applications. BWA’s chemical

move heavy metals and destroy pathogens and other harmful treatments are used by customers on sites ranging from oil

bacteria. The Bio-Catalytic patent enhances the inactivation of refineries and breweries to air conditioning in office buildings.

pathogenic and other microorganisms, such as bacteria, virus, Its products are also used in the prevention of microbiological

fungi and protozoa that are common pollutants to water sup- growth and build-up of lime scale in industrial plants ranging





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from large cooling towers to smaller air conditioning units.

The terms of the transaction were not disclosed.

Chapter 05

• In June 2006, ITT (NYSE:ITT) announced that it acquired the

F.B. Leopold Co., based in Zelienople, Pa. Leopold serves pri- ANALYSIS & CONCLUSION

marily the municipal and industrial water and wastewater treat-

ment facilities market. This acquisition expands ITT’s ability to

provide pre-treatment filtration technology for surface water,

reuse and desalination, which is essential to providing clean

water and in meeting current and future regulatory require-

ments. The acquisition is expected to build on ITT’s leadership

position in water treatment, reuse and disinfection. Founded

in 1924, Leopold, with annual revenues of approximately $50

million, is a leader in clarification and gravity filtration technol-

ogy. The terms of the transaction were not disclosed.



• In July 2006, Kemira Oyj, a Finnish chemicals maker, acquired

Cytec’s water treatment chemical business. The purchase price

is approximately $240 million. With this acquisition, Kemira’s

revenue in the water treatment business is expected to double.

Cytec’s water treatment line consists of products in industrial

and municipal wastewater treatment. The company has approx-

imately 480 employees. The acquisition is expected to strength-

en Kemira’s position as a leading supplier of coagulants and

flocculants. The terms of the transaction were not disclosed.



• In October, 2006, Aqua America Inc. announced the comple-

tion of four water system acquisitions and purchased another

wastewater services business. The latest acquisitions, with a

combined purchase price of nearly $600,000, add to previ-

ously announced transactions, resulting in a total of five utility

acquisitions and three in the wastewater services and disposal

business for the quarter. During the first nine months of 2006,

the company completed a total of 18 acquisitions. The compa-

ny’s non-regulated subsidiary, Aqua Wastewater Management,

Inc., recently purchased the assets of Bregande Excavating, Inc.

of Glen Mills, Pa., further expanding its wastewater services

and septage hauling business in southeastern Pennsylvania. In

addition to these transactions, the company continues to engage

in various growth ventures to expand its service territory.





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CONCLUSION





CONCLUSION

Total Water Market as an investment Water Treatment Market as an investment







W

ater, and access to good drinking water, was and is al- There are a number of approaches to solving the many global

The outlook for ways viewed as an inalienable right. It remains the single issues surrounding water treatment. However, most technologies

water stocks today most important economic input to the global economy, revolve around the refinement of efficiency and effectiveness of

and more specifically, to the individual enterprise. No longer to traditional approaches, through newer materials and designs

remains positive be abusively undervalued, water has been transformed into a — nothing really earth-shattering. What will drive these tech-

and strong and future “luxury” commodity. nologies’ adoption will be a deterioration of water quality here

and abroad, the desire and concern for better water choices by

offers risk-reward Water stocks, whether infrastructure, treatment (quality) plays, homeowners, and education and marketing of alternative water

are becoming ever more attractive to investors. No other indus- treatment methods to consumers.

characteristics

try rivals the global water industry in the number of key drivers

for all types of propelling the growth of the industry. The water sector is on fire: The cost of these new treatment methods will always be a

many stocks are near or at the top of their 52-week range. In consideration for consumers in developed markets, especially We anticipate

investors addition, regular dividend increases tend to keep the stock prices when acceptable bottled water can be bought relatively cheaply. an increasing

moving ahead on a very consistent and predictable basis. Is this In emerging markets, and those with limited availability to clean

the time to go for a pure play? or treated water, however, new technologies that resolve local number of water

treatment problems will experience the greatest success.

Whether a bull or a bear, everyone, irrespective of their risk

IPOs and M&A

The water treatment sector is always evolving, since water

profile, can benefit from the water story. The bears can buy sources do not typically improve over time, but rather only activity during

into the bonds posted by major cities to finance the refitting or deteriorate at a lesser rate. Treatment technologies, therefore,

re-engineering of their water (treatment & sewage) infrastructure need to continuously keep pace, as new water hazards are being

the next couple

strategies. We believe that the municipal based bond markets discovered daily. Each new hazard needs to be addressed with of years

will be uneven and ripe with opportunity for the astute bond more efficient technologies.

trader. On the other, the bulls can play the stock market. A bal-

anced portfolio approached is however recommended as much A number of companies mentioned in this report, have or are

of the easy money may already have been made. In other words, developing technologies that are overcoming many of the chal-

pick up one major infrastructure play and counterbalanced this lenges inherent in treating water, and facing an increasingly

purchase with a few water treatment plays. You may want to aware customer base eager to buy their products. As such, we

add a few of raw material suppliers (eg,.chlorine, charcoal) and anticipate an increasing number of water IPOs and M&A activ-

water monitor device companies to this portfolio. At the end of ity during the next couple of years, as the sector begins to form

the day, the risk-averse investor alternatively could buy into one leaders. Water is the world’s most valuable resource, and much

of the existing water funds. The outlook for water stocks today of the population (and investors) may be only just beginning to

remains positive and strong and offers risk-reward characteris- treat it as such.

tics for all types of investors.









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GLOSSARY





GLOSSARY Parker Hannifin Corporation, Pro- Mi-T-M Corporation Smith and Loveless, Inc.

cess Advanced Filtration Div. Norland International, Inc. So Safe Products L.L.C.

Water Technology Companies PWC, Pure Water Corporation North American Salt USFilter Memcor Products

Filter Companies Reserve Filter Systems O3 Water Systems, Inc (See Siemens)

AdEdge Technologies, Inc. Siemens Water Technologies Orca Water Technologies

Amiad Filtration Systems Smith and Loveless, Inc. Parkson Corporation Global Water Conferences

Aqua Solutions. Inc. Spintek Filtration, Inc. PEPCON Systems China Water Congress

Aqua-Aerobic Systems, Inc. WesTech Engineering, Inc. ProMinent Fluid Controls, Inc. April 19-20, 2007

Arkal Filtration Systems WTC industries (now part of RainSoft, a Division of AWTP, Beijing, China

Automatic Filters Inc. - Tekleen Cuno Inc.) LLC

Cuno Inc. ZENON Environmental Inc. (now Severn Trent Services Cleantech Forum™ XIII

DuPage Water Conditioning part of GE) Severn Trent Services - Disinfection May 14-16, 2007

Eaton Filtration, LLC Products Frankfurt, Germany

Ecodyne Water Treatment, LLC Water Treatment Companies Siemens Water Technologies

Eden Equipment Company Addie Water Systems Smith and Loveless, Inc. ACE07 (American WaterWorks

Filtertech, Inc. Aquious -- PCI Membranes TDM Association)

Global Equipment Mktg. Inc., Atlantic Ultraviolet Treatment Products Corp. June 24–28, 2007

Magnetics Division Automatic Filters Inc. - Tekleen Trojan Technologies Inc. Toronto, Ontario, Canada

Good Water Warehouse Basin Water, Inc. URS

Great Lakes International, Inc. CDS Technologies USFilter Environmental Services WEFTEC (Water Environment

Harmsco Filtration Products ClearWater Tech, a division of USFilter Memcor Products Federation)

Hungerford & Terry AWTP, LLC (See Siemens) October 13 – 17, 2007

Hydration Technologies Columbian TecTank USFilter Stranco Products San Diego, CA

Hydro Service & Supplies Crane Environmental (See Siemens)

Integra Environmental, Inc. DuPage Water Conditioning UV Pure Technologies Inc. WATEC (Water Technologies and

Keystone Filter Div., Ecodyne Water Treatment, LLC Veolia Water Solutions & Environmental Control)

Met-Pro Corp. Emerson Process Management Technologies October 30-Nov. 1, 2007

Koch Membrane Systems, Inc. Enprotec Water-Right, Inc. Tel-Aviv, Israel

Komline-Sanderson Enviroquip, Inc. WEDECO/ITT Industries

KX Industries, Private F B Leopold Co. Inc. WesTech Engineering, Inc. AWT Water Technologies Con-

Matrikx International Freije Treatment Systems, Inc. vention

Membrana GmbH GE Water & Process Technologies Desalinization Companies November 7-10, 2007

Miller Leaman Inc. GE Water & Process Technologies Hydranautics Colorado Springs, CO

Mott Corporation Highland Tank & Mfg. Co. Ionics Inc. (purchased by GE

Multi-Pure Drinking Water Hungerford & Terry for $1.1B)

Systems Hydro Instruments ITT Aquious Water Equipment

Nanosight, Salisbury International Water, LLC Technologies

Orival, Inc. Keystone Filter Div., Koch Membrane Systems, Inc.

Ozone Pure Water, Inc. Met-Pro Corp. Komax Systems Inc

Pall Corporation Mazzei Injector Corporation Myron L Company

Meridian Water International Siemens Water Technologies



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GLOSSARY





GLOSSARY: WATER TECHNOLOGIES ions are removed by an anion exchange resin for a chemi-

cally equivalent amount of hydroxide ions. The hydrogen and

hydroxide ions introduced in this process unite to form water

Advanced Waste Water Treatment: Any treatment of sewage

molecules. The term is often used interchangeably with deminer-

that goes beyond the secondary or biological water treatment

alization.

stage and includes the removal of nutrients such as phosphorus

and nitrogen and a high percentage of suspended solids. (See

Demineralization: The removal of ionized inorganic minerals

primary, secondary treatment.)

and salts (not organic materials) from a solution by a two-phase

ion exchange procedure; similar to deionization, and the two

Brine: A strong solution of salt(s), such as the sodium chloride

terms are often used interchangeably.

brine used in the regeneration of ion exchange water softeners,

but also applied to the mixed sodium, calcium and magnesium

Desalinization: Removing salt from ocean or brackish water.

chloride waste solution from regeneration.



Disinfectant: A chemical or physical process that kills patho-gen-

Calcium: One of the principal elements making up the earth’s

ic organisms in water. Chlorine is often used to disinfect sewage

crust, the compounds of which when dissolved make the water

treatment effluent, water supplies, wells, and swimming pools.

hard. The presence of calcium in water is a factor contributing

to the formation of scale and insoluble soap curd which are a

Distillation: The process in which a liquid, such as water, is

means of clearly identifying hard water.

converted into its vapor state by heating, and the vapor cooled

and condensed to the liquid state and collected; used to remove

Carcinogen: Any substance that can cause or contribute to the

solids and other impurities from water, multiple distillations are

production of cancer.

required for extreme purity.

Chemical Treatment: Any one of a variety of technologies that

Effluent: Wastewater—treated or untreated—that flows out of a

use chemicals or a variety of chemical processes to treat waste.

treatment plant, sewer, or industrial outfall. Generally refers to

wastes discharged into surface waters.

Chlorination: The application of chlorine to drinking water,

sewage, or industrial waste to disinfect or to oxidize undesirable

Filter: Specifically, a device or system for the removal of solid

compounds.

particles (suspended solids); in general, includes mechanical,

adsorptive, oxidizing and neutralizing filters.

Chlorine: A gas, C12, widely used in the disinfection of water

and an oxidizing agent for organic matter, iron, etc.

Filtration: A treatment process, under the control of qualified

operators, for removing solid (particulate) matter from water by

Dechlorination: Removal of chlorine from a substance by chem-

passing the water through porous media such as sand or a man-

ically replacing it with hydrogen or hydroxide ions in order to

made filter. The process is often used to remove particles that

detoxify the substances involved.

contain pathogenic organisms.

Deionization: The removal of all ionized minerals and salts

Flow Control: A device designed to limit the flow of water or

(both cationic and anionic) from a solution by a two-phase ion

regenerant to a predetermined value over a broad range of inlet

exchange procedure. First, positively charged for a chemically

water pressures.

equivalent amount of hydrogen ions. Second, negatively charged



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GLOSSARY





Fluoridation: The addition of a fluoride compound to a water Parts Per Million (PPM): A common basis for reporting the

supply to produce the concentration desired for the reduction in results of water and wastewater analysis, indicating the num-

incidence of dental caries. ber of parts by weight of a dissolved or suspended constituent,

per million parts by weight of water or other solvent, In dilute

Fresh Water: Water that generally contains less than 1,000 mil- water solutions, one part per million is practically equal to one

ligrams-per-liter of dissolved solids. milligram per liter, which is the preferred unit.



Gray Water: The term given to domestic wastewater composed Pathogens: Microorganisms that can cause disease in other

of washwater from sinks, kitchen sinks, bathroom sinks and organisms or in humans, animals and plants. They may be

tubs, and laundry tubs. bacteria, viruses, or parasites and are found in sewage, in runoff

from animal farms or rural areas populated with domestic

Hardness: A characteristic of natural water due to the presence and/or wild animals, and in water used for swimming. Fish and

of dissolved calcium and magnesium; water hardness is respon- shellfish contaminated by pathogens, or the contaminated water

sible for most scale formation in pipes and water heaters, and itself, can cause serious illnesses.

forms insoluble “curd” when it reacts with soaps. Hardness is

usually expressed in grains per gallon, parts per million, or mil- pH: The measure of acidity or alkalinity of a chemical solution,

ligrams per liter, all as calcium carbonate equivalent. from 014. Anything neutral, for example, has a pH of 7. Acids

have a pH less than 7, bases (alkaline) greater than 7.

Heavy Metals: Metallic elements with high atomic weights,

e.g. mercury, chromium, cadmium, arsenic, and lead. They can Pretreatment: Processes used to reduce, eliminate, or alter the

damage living things at low concentrations and tend to accumu- nature of wastewater pollutants from non-domestic sources be-

late in the food chain. fore they are discharged into publicly owned treatment works.



Ion Exchange Treatment: A common water softening method Primary Waste Treatment: First steps in wastewater treatment;

often found on a large scale at water purification plants that screens and sedimentation tanks are used to remove most

remove some organics and radium by adding calcium oxide or materials that floats or will settle. Primary treatment results in

calcium hydroxide to increase the ph to a level where the metals the removal of about 30 percent of carbonaceous biochemical

will precipitate out. oxygen demand from domestic sewage.



Mercury: A heavy metal that can accumulate in the environment Receiving Waters: A river, lake, ocean, stream or other water-

and is highly toxic if breathed or swallowed. (See heavy metals.) course into which wastewater or treated effluent is discharged.



Osmosis: A process of diffusion of a solvent such as water Reverse Osmosis: A water treatment process used in small water

through a semi-permeable membrane which will transmit the systems by adding pressure to force water through a semi-per-

solvent but impede most dissolved substances. The normal flow meable membrane. Reverse osmosis removes most drinking

of solvent is from the dilute solution to the concentrated solution. water contaminants. Also used in wastewater treatment. Large-

scale reverse osmosis plants are now being developed.

Oxidation: The addition of oxygen which breaks down organic

waste or chemicals such as cyanides, phenols, and organic sulfur Saline Water: Water containing an excessive amount of dissolved

compounds in sewage by bacterial and chemical means. salts, usually over 10,000 mg/1.





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GLOSSARY





Secondary Treatment: The second step in most publicly owned Dosage is a combination of UV intensity times the contact time

waste treatment systems in which bacteria consume the organic and is measured in watt-seconds per square centimeter.

parts of the waste. It is accomplished by bringing together

waste, bacteria, and oxygen in trickling filters or in the activated Waste Treatment Plant: A facility containing a series of tanks,

sludge process. This treatment removes floating and settleable screens, filters and other processes by which pollutants are re-

solids and about 90% of the oxygen-demanding substances and moved from water.

suspended solids. Disinfection is the final stage of secondary

treatment. (See primary, tertiary treatment.) Waste Water: Water that has been used. The stream of water cre-

ated as the result of processing water — the reject water or con-

Sequestering Agent: A chemical compound sometimes fed into centrate. The used water and solids from a residence or a com-

water to tie up undesirable ions, keep them in solution, and munity (including used water from industrial processes) that flow

eliminate or reduce the normal effects of the ions. For example, to a septic system or a treatment plant. The term sewage usually

polyphosphates can sequester hardness and prevent reaction refers to household wastes, but this word is being replaced by the

with soap. term waste water.



Soft Water: Any water that is not “hard,” i.e. does not contain a Water (H2O): An odorless, colorless, tasteless liquid which exists as

significant amount of dissolved minerals such as salts containing ice in solid form and steam in vapor form. It freezes at 32°F (0°C)

calcium or magnesium. and boils at 212°F (100°C). It is the liquid that descends from

the clouds as rain and forms lakes, streams, and oceans. Water is

Tertiary Treatment: Advanced cleaning of wastewater that goes a major constituent of all living matter. Also referred to as H2O

beyond the secondary or biological stage. It removes nutrients (dihydrogen oxide) and HOH (hydrogen hydroxide).

such as phosphorus and nitrogen and most BOD and suspended

solids. Water Treatment Device: Any point-of-use or point-of-entry instru-

ment or contrivance sold or offered for rental or lease for residen-

Total Dissolved Solids (TDS): The weight of solids per unit tial use, and designed to be added to the plumbing system, or used

volume of water which are in true solution, usually determined without being connected to the plumbing of a water supply intend-

by the evaporation of a measured volume of filtered water, and ed for human consumption in order to improve the water supply

determination of the residue weight. by any means, including, but not limited to, filtration, distillation,

adsorption, ion exchange, reverse osmosis, or other treatment.

Ultrafiltration: A method of crossflow filtration (similar to

reverse osmosis but using lower pressures) which uses a mem- WHO: World Health Organization.

brane to separate small colloids and large molecules from water

and other liquids. The ultrafiltration process falls between re- Zero Discharge Water: A discharge limit applied to manufactur-

verse osmosis and microfiltration in terms of the size of particles ing and commercial establishments in which only normal hu-

removed, with ultrafiltration removing particles in the 0.002 to man sanitary waste waters may be discharged to the municipal

0.1 micron range, and typically rejecting organics over 1,000 sewerage system. All other types of waste water, such as that

molecular weight while passing ions and smaller organics. water used in manufacturing processes, are not included in zero

discharge water; but they must be recycled, and the resulting

Ultraviolet Dosage: The amount of disinfectant ultraviolet rays waste product from such water must be taken to an alternate and

delivered to the organisms in the water being disinfected. approved disposal facility.





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