Quiet Period Expiration Could Push Aquaventure Holdings LLC (WAAS) Shares Higher

The quiet period for the Aquaventure Holdings LLC (NYSE:WAAS) IPO is scheduled to expire on Oct. 31, 2016. The expiration will allow the company’s underwriters to release reports and recommendations on Nov. 1, 2016. These reports are likely to be positive and result in a temporary increase in share price. We recommend purchasing shares in WAAS ahead of the IPO Quiet Period expiration and have a price target of $24 for the event.

Our research has found that purchasing shares 5 days prior to the quiet period expiration and selling 2 days after expiration resulted in above-market returns of over 2%. The return was higher for a sample that excluded Banks and REITS (approximately 2.7%). We suggest other investors consider following this holding strategy.

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WAAS’ strong slate of underwriters includes Citigroup (NYSE:C), Deutsche Bank (NYSE:DB) and RBC, Canaccord Genuity, Raymond James and Scotiabank.

Business Overview: Global Provider Of Water-As-A-Service

Aquaventure Holdings LLC (NYSE:WAAS) is a company that provides water-as-a-service to its customers around the world in order to help them ensure that their water is affordable and safe. It offers water treatment and purification services to business and governments and operates through its subsidiaries, Quench and Seven Seas. The company is based in Tampa, Florida and was founded in 2006. Currently, the company has over 500 employees.

In June 2014, Quench acquired Atlas, which enabled it to greatly expand its market in Boston, Massachusetts. Quench operates in the U.S., while Seven Seas builds, operates and designs water treatment facilities in Saudi Arabia, Chile, the Caribbean as well as the U.S.

Prior to going public, the company raised $157.91 million in six rounds of funding, with its most recent round taking place on May 1, 2015. Notable investors include Element Partners, T. Rowe Price (NASDAQ:TROW), TPG Growth and others.

Management Team Overview

Douglas R. Brown founded the company and has served as a member of the board of directors and as chairman since Jan. 2007. He served as the chief executive officer from Jan. 2007 until Oct. 2012 and again from Oct. 2014 to the present. He previously served as the CEO of water purification technology company Ionics, Inc., which was sold to General Electric in 2005. Brown has two decades of experience in the water purification industry. He also has 17 years of prior experience working at Advent International, which is a global private equity firm. Brown holds a Bachelor of Science in chemical engineering from the Massachusetts Institute of Technology as well as a Master of Business Administration from Harvard University.

Anthony Ibarguen has served as President of AquaVenture Holdings and a board member since June 2014. He additionally serves as the CEO of Quench, a position he has held since Oct. 2010. Ibarguen has served in executive roles for a number of different companies over the past 20 years. He holds a Bachelor of Arts in marketing from Boston College and a Master of Business Administration from Harvard University.

Competitors

The competitors for AquaVenture include engineering, procurement, construction, large-scale development and outsource-model service companies. General Electric (NYSE:GE), 3M Purification (NYSE:MMM), Culligan and others are all competitors of AquaVenture Holdings. It also competes against water and wastewater utility companies, including American Water Works Company (NYSE:AWK), Aqua America, Inc. (NYSE:WTR) and others.

Financials

AquaVenture reported total revenues of $27,780,000, $67,127,000 and $100,335,000 in 2013, 2014 and 2015, respectively. The company’s compounded annual growth rate from 2010 to 2015 was 40.5 percent. It reported that it had a net loss of $41,789,000 in 2015, $27,353,000 of which was a goodwill impairment.

Although WAAS competes in a large and growing market, there are specific risks associated with its business model. Seven Seasons desalination facilities are located in the Caribbean, which puts the company at high risk for natural disasters. In particular, recent hurricane Matthew has made investors even more aware of the challenges of investing in businesses with operations in the Caribbean.

AquaVentures has grown significantly through acquisitions and generated impressive year-over-year revenue growth. The company plans to continue making acquisitions to increase scale. In its S-1/A form the company wrote that it planned to use $45 million of the proceeds from the IPO to fund its acquisition of ADB through its purchase and sales agreement. Long-term investors focused on operational performance should keep careful watch of these acquisitions to ensure that company is making smart acquisitions that are aligned with the business and add value.

Performance Since IPO

AquaVenture Holdings priced its IPO at $18 per share, which was the low end of its marketed range of $18 to $20. It jumped 21 percent in its first day of trading and an additional 4.8 percent in the after-market. The company has performed well since its IPO and was trading at approximately $24.00 at the close on Friday. Below shows stock price performance since IPO.

Conclusion: Buy

Aquaventure Holdings LLC (NYSE:WAAS) has shown substantial growth in its revenues and has performed well in the stock market since making its debut.

The company is backed by several notable venture capital firms, as well as a strong team of underwriters.

We expect its underwriters will be eager to release detailed positive reports at the expiration of the upcoming quiet period and lead to a jump in share price.

We recommend that investors purchase shares in advance of the company’s quiet period expiration on 10.31.16. To profit from this event, investors should sell shares on November 1st after the underwriter reports and recommendations are released.

Disclosure: I am/we are long WAAS.

Note: This article is written by Don Dion. Visit his site at DRD Investments for expert analysis on current and upcoming IPOs.