Michael Kanellos

Desalination Company Rises in IPO Today July 2, 2008 at 10:07 AM

This should calm some of that hand wringing about the death of IPOs.

Energy Recovery Inc., which makes equipment to reduce the cost of desalinating water, started trading today. The company released approximately 14 million shares at $8.50, at the high side of the $7 to $9 range it gave earlier.

The stock is now selling for around $10.24. It got as high as $11. However, the low point so far is $9.61 so the stock has been trading above its initial offering price all day. The rest of the stock market is down. It might dip, but not a bad start.

What does that mean? In a nutshell, the world hasn’t ended yet. Although greentech companies tend to be heavy on capital, investors still believe that the market opportunity is large and companies with interesting technologies will likely still do well.

ERI, by the way, makes a system that harvests power from the high-pressure waste streams created by the desalination process. In reverse osmosis desalination, sea water gets forced through a membrane. Fresh water and steam come out the other end. The fresh water goes to a tap and ERI harnesses the steam to power the machines that force the water through the membrane. ERI is effectively doing a Kung Fu here by using the pressure of the water against itself. The system cuts the power required for desalination in half. Desalination is expensive and one of the biggest expenses is the energy.

The company has installed its pumps in over 300 plants and, by its own estimate, this equipment in the aggregate reduces power consumption by 300 megawatts. In 2007, revenue came to $35.4 million and net income came to $5.8 million, a big jump over the $20 million in revenue and 2.4 million in net income for 2006. In 2003, the company pulled in $4 million. In the first quarter of 2008, revenue came to $9.1 million and net income totalled $947,000.

Singapore, Australia, Israel, India and the U.S. are all increasing experimentation and investments in desalination.

One more point: ERI shares something with First Solar, the poster child of green tech IPOs. That is, it’s old. ERI was founded in 1992. Thus, the IPO comes after 16 years. First Solar was around for about two decades (in various incarnations) before its IPO. It takes a long time to refine technology in green tech.

One last point: ERI is based in San Leandro, California. No U.S.-based venture-based companies went public in the second quarter, the first time that’s happened for several years. (Only around one international VC-backed company went public in the second quarter, an agent at Thomson-Reuters estimated for me.).

I’m actually not sure if ERI is venture backed. Will find out more and update.

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