Kovalus Separation Solutions, a Sun Capital Partners-backed provider of membrane filtration, ion exchange, evaporators, dryers, and other technologies to the food, beverage, dairy, industrials, and other markets, will “start to be more aggressive on the M&A side” after six months to a year, said CEO Manny Singh.

But in the meantime, the Wilmington, Massachusetts-based company, with more than 700 employees and upwards of USD 250m in annual revenue, is prioritizing organic growth, he added.

In October, Sun acquired Koch Separation Solutions, a subsidiary of conglomerate Koch Industries, for undisclosed terms, and rebranded it as Kovalus. In the short term, Sun will invest in product development and internal growth plans while it “lays the groundwork for strategic acquisitions,” said Jeremy Stone, Senior Managing Director at Sun, during a joint interview with this news service.

Sun and Kovalus are in the preliminary stage of developing relationships with potential sellers, so that “if everything comes together over the next six to 12 months, we can [easily] transact,” Stone continued. He added that he does not expect an acquisition to happen this calendar year but “wouldn’t be surprised” if a deal closes in 2025, though he stressed that there is no set acquisition timeline.

Singh said that the near-term priority is to “fully stabilize” the carveout from Koch but added that a deal could come sooner than anticipated if a logical strategic fit comes along.

Add-on targets that extend Kovalus’ capabilities would be ideal, said Singh. Asked about potential target size, Stone said it would pursue companies with revenue ranging from below USD 50m to above USD 100m but added that the top priority is to find synergistic targets.

As an example of a target base that Kovalus could eventually pursue, Singh mentioned anaerobic technology businesses that extract energy from waste, a key area for Kovalus. “We can do some extent on our own, but over a longer term we’d do M&A,” he noted.

Pharmaceuticals and lithium batteries for electric vehicles are two other attractive areas where Kovalus wants to “double down” on implementing its separation technology, he added.

Kovalus started offering separation solutions for the lithium extraction space in 2022. In the pharma and life sciences space, it offers specialized membranes to “concentrate, purify, and clarify select compounds cost-effectively” and “filter biochemicals and biomaterials for food and feed ingredients,” according to its website.

A broader but crucial goal for Kovalus is to bring more waste and wastewater solutions to end customers, said Singh.

Kovalus is unique for being one of few companies to focus on both waste/wastewater treatment as well as process separation when treating wine, beer, and milk and other dairy products, Singh explained. Such waste and wastewater challenges will “happen globally in all the industries you can think of” as contaminant regulations grow stricter, he projected. Stone noted that demand has grown for Kovalus’ technologies as companies are under more pressure to meet ESG objectives.

During its sale process, the company was “highly sought after” by several strategic competitors as well as financial suitors, said Stone. The company’s advisor, Houlihan Lokey, contacted Sun to join a “small group of qualified buyers,” he added, and Sun was able to complete the complex carve-out transaction speedily. The firm got involved with the process in the spring of 2023 and signed a definite agreement in the early summer, said Stone.

Concurrent with the acquisition by Sun, Kovalus brought on CFO Dan Sutherby and VP of HR Marc Pulpi.

In late 2020, Kovalus bought RELCO, a provider of process technologies to the dairy and food sectors, which added complementary evaporation and drying offerings. Singh said that Kovalus is only planning organic growth so far for RELCO, taking its membrane technology to sectors beyond RELCO’s core dairy focus.

Kovalus also wants to grow organically in such dairy-rich areas as Australia, New Zealand, and India, said Singh. Asked if Kovalus could make acquisitions in these areas, Stone said the company is “looking for the best opportunities globally,” declining to elaborate.

Stinson served as Kovalus’ law firm on the Sun transaction, while Sun’s financial advisor and legal counsel were Jefferies and Kirkland & Ellis, respectively, said Stone.

The company’s Likely-to-Exit (LTE) score is 8 out of 100, according to Mergermarket’s Likely to Exit (LTE) predictive algorithm*.

* Mergermarket’s LTE predictive analytics assign a score to sponsor-backed companies to help track and predict when an exit could occur through M&A, an IPO, a direct listing or a deSPAC transaction.