Calix seeks European targets; mulls divestment of three business units – CEO

24 July 2020

Calix, an Australian industrial technology company, is actively scouting targets in Europe for its water and wastewater business area, CEO Phil Hodgson said. The company, with a market cap of AUD 110m (USD 78m), welcomes advisory approaches that could introduce targets, especially as it is more difficult to find targets during the COVID-19 pandemic, given the travel restrictions, the CEO said.

 

  • Germany especially interesting for acquisitions
  • Welcomes advisory approaches regarding specific targets

 

Calix, an Australian industrial technology company, is actively scouting targets in Europe for its water and wastewater business area, CEO Phil Hodgson said.

 

The company, with a market cap of AUD 110m (USD 78m), welcomes advisory approaches that could introduce targets, especially as it is more difficult to find targets during the COVID-19 pandemic, given the travel restrictions, the CEO said.

 

Meanwhile, the company is considering options for its agriculture crop protection, carbon dioxide (CO2) mitigation, and advanced batteries business units, including sale, joint venture (JV) partnerships and licensing agreements, he said.

 

Calix’s core technology is based on a new type of kiln, which can process multiple minerals and capture CO2. The end product is magnesium hydroxide liquid (MHL), used for treating wastewater, among other applications. However, Calix’s technology creates a “honeycomb-like” porous structure with a large surface area, making the magnesium hydroxide more reactive and effective, the CEO explained.

 

Seeking European acquisition

An acquisition of a water treatment company in Europe would be “the next obvious cab off the rank” for Calix, Hodgson said. The company already has a presence in Europe with its other business areas, and an acquisition would facilitate its market entry into water and wastewater in Europe, he said. Germany, in particular, is an interesting market for acquisitions, he said.

 

Targets could look similar to US-based Inland Environmental Resources (IER), which Calix acquired last year for USD 6.5m, Hodgson said. IER provides MHL for wastewater treatment, and Calix can roll out its IP onto IER, he explained.

 

In Australia, Calix has its own magnesite mine, which provides the raw material for MHL. To expand overseas, it makes sense to have access to feedstock locally, rather than shipping product from Australia, Hodgson continued.

 

The company is cash flow positive but would not have enough spare cash for an acquisition, therefore it would likely need to raise capital to fund future acquisitions, the CEO said. The company had AUD 12.4m in cash at 4 May, and is debt-free, according to a company presentation. 

 

The water and wastewater business is Calix’s most mature business unit. It drives revenue and finances R&D for the other units, Hodgson said. Calix’s FY20 sales revenue guidance is AUD 12.5m-14m, as announced by the company. It has also secured around AUD 30m in new grant funding for further R&D, according to a company presentation.

 

Divestment candidates

As a small technology company, it is difficult for Calix to give the deserved attention to all of its five business units. Hence, it is actively on the lookout for divestment or JV opportunities for three of them: agriculture crop protection, CO2 mitigation, and advanced batteries, Hodgson continued.

 

  • Agriculture crop protection

Calix’s MHL can be used as safe, environmentally friendly crop protection, which repels rather than kills pests, Hodgson said. This way, growers can cut back on their “killer chemicals” to at least 50%.  It saves money as well as the environment, as the product costs about a fifth as much as average pesticide or fungicide, he said.

 

Biopesticides are gaining market share – crop protection majors, such as Dow [NYSE:DOW], have made them part of their portfolios, the CEO noted. Crop protection is a USD 60bn market globally, he added.

 

Calix has started commercial sales of its crop protection product in Europe this northern summer via a distribution license agreement with Spanish Afepasa. This could be the type of logical partner that might want to own or partially own the technology, Hodgson speculated.

 

  • CO2 mitigation for lime and cement

Calix’s CO2 mitigation business area directs itself to the lime and cement industry. The company’s novel kiln can capture the CO2 produced in the processing of limestone, cement meal or magnesite. The lime and cement market is very CO2 intensive, and given the regulatory restrictions coming into place, for example in the EU, regarding allowable CO2 emissions, there is a lot of interest from the industry in reducing emissions, Hodgson said.

 

Calix has a pilot plant at HeidelbergCement’s [ETR:HEI] Lixhe plant in Belgium and has received funding to scale up to a larger plant, the CEO said. The company is working with a number of strategic partners on the project, among others German cement tech firm IKN, which could be the kind of logical partner that might want a strategic ownership in Calix’s technology, Hodgson said.

 

  • Advanced batteries

Within the advanced batteries unit, Calix is doing R&D on whether its technology can be used for processing lithium spodumene to create better batteries, Hodgson said. The controlled porosity that gives Calix’s MHL the honeycomb-like, porous structure mentioned in the introduction of this article, could improve performance of battery anodes as well as cathodes, according to Hodgson.

 

Calix is within some collaborative networks globally, such as the Future Battery Industries Cooperative Research Centre. The company’s batteries unit could be of strategic interest to industrial partners in those networks, the CEO said.

 

Unlikely takeover target in current form

Calix is less likely to be taken over as a whole, according to Hodgson. “It’s hard to see the company being taken out and get the valuation it deserves”, he explained. Also, the company in its current form, with its five business areas, might be too sprawling for one single buyer, he added.

 

Its fifth business unit is aquaculture and fresh water remediation, which is based on the company’s active MHL technology, just like the water & wastewater and agriculture crop protection units. For the aquaculture unit, Calix is focused on prawn farmers in Southeast Asia and China. MHL helps aerate and oxygenate the sludge at the bottom of prawn ponds – if untreated, the sludge goes acidic and septic and results in lower yield, Hodgson explained.

 

The aquaculture unit is the only one notably impacted by the COVID-19 pandemic, according to Hodgson. Calix shipped one container to China this year, compared to 13 last year, he said. It is still very early days for the business unit, but Calix already has repeat customers in Southeast Asia and is planning market entry to India, he said.