H2O Innovation Inc. has agreed to be acquired by Ember SPV I Purchaser Inc., alongside Investissement Québec (IQ) and Caisse de dépôt et placement du Québec (CDPQ) in a transaction which values the company at $395 million.

Ember SPV is an entity controlled by funds managed by New York-based private equity firm Ember Infrastructure Management, LP. When the transaction is complete, Ember will be the controlling shareholder of H2O Innovation (HEO-T), with IQ, CDPQ and the company's key executives, together, holding a 21 per cent equity interest in the firm.

The deal is expected to close in Q4 of this year.

“We are very excited to partner with Ember to accelerate growth. We look forward to leveraging their relationships, resources and expertise as we execute on our growth strategy in a manner consistent with our core values of loyalty, entrepreneurship, achievement and unity,” Frédéric Dugré, H2O Innovation’s president, CEO and co-founder, said in a statement.

“As a private equity firm investing in infrastructure solutions to reduce carbon intensity, increase resource efficiency and enhance climate resilience, Ember is the ideal partner for H2O Innovation.”

Quebec City-based H2O Innovation focuses on drinking water, wastewater and water reuse applications in several market segments, including municipal, oil and gas as well as food and beverage. It is active across Canada, the U.S., Mexico and Europe.

As of the end of June 2023, the CDPQ’s net assets totalled $424 billion.

The H2O acquisition

H2O Innovation’s board had unanimously recommended shareholders vote in favour of the transaction.

Company shareholders will receive a price of $4.25 per share, payable entirely in cash, which represents a premium of approximately 68 per cent to the closing price of the shares on the TSX on Oct. 2.

Following news of the agreement, H2O Innovation's shares jumped over 66 per cent on the TSX.

Ember has committed to maintaining H2O Innovation’s head office, key executives and the same number of employees in Quebec.

"While H2O Innovation has achieved significant success in delivering its services and solutions to its customers both organically and through acquisition-driven growth since its inception, we see a unique opportunity for H2O Innovation to enter a new phase of growth supported by our capital and industry expertise,” Elena Savostianova, managing partner at Ember, said in a statement.

“We intend to take a long-term view as we support the ongoing implementation of H2O Innovation’s existing strategy, while continuing to find additional opportunities to better serve its customers.”

Norton Rose Fulbright Canada LLP is H2O Innovation’s legal counsel; Weil, Gotshal & Manges LLP and Davies Ward Phillips & Vineberg LLP are legal counsel to Ember; Fasken Martineau DuMoulin LLP is legal counsel to IQ; and Blake, Cassels & Graydon LLP is legal counsel to CDPQ.

Scotiabank acted as exclusive financial advisor to H2O Innovation and Desjardins acted as independent financial advisor to the special committee. Raymond James acted as financial advisor to Ember.

H2O Innovation may solicit a superior offer for a defined “go-shop” period, during which Scotiabank can approach potential interested parties with a view to soliciting a higher offer. Ember is entitled to match the offer.

"As a long-time shareholder, CDPQ is pleased to continue its partnership with H2O Innovation, a growing company operating in a strategic sector of our economy,” Kim Thomassin, executive vice-president and head of Québec at CDPQ, said in a statement.

“With this privatization, the corporation will be able to continue executing its acquisition plan while maintaining its infrastructure and talent in Québec.”