De.mem’s Capic acquisition bears fruit with first cross-sales; CEO flags further growth to come

The cross-sales reflect the huge value-add opportunity stemming from De.mem’s strategic acquisition in April.

Amid a strong period of growth that’s left it on track to book record annual revenues in FY21, water technology company De.mem (ASX:DEM) flagged the strategic acquisition of WA-based chemicals business Capic in early April.

A supplier of specialty chemicals used in water treatment, Capic has a blue-chip client base that includes the likes of BHP and Pilbara Minerals.

And this morning, De.mem flagged a key value-add from the acquisition; the first instance of cross-selling between the two platforms.

De.mem has received its first orders for chemicals manufactured by Capic, to be supplied to its customer suite on Australia’s east coast.

The Capic chemicals replace inputs that were originally sourced from an external supplier.

So the net result is that the acquisition has allowed De.mem to vertically integrate its supply chain, reduce its cost base and drive higher margins.

Strategic rationale

Commenting on the update, De.mem CEO Andreas Kroell highlighted that the cross-sale achievement is a strong endorsement of the strategic rationale for acquiring Capic.

While the initial orders to De.mem’s east coast customers are immaterial in the context of the group’s cash receipts, the early synergies provide a profitable glimpse of further growth that can be achieved, the company said.

Already, Capic sales in the month since the acquisition (~$300,000) put it ahead of its full-year revenue run-rate in the three prior years.

De.mem also flagged its strong track record in bedding down acquisitions, where its two other subsidiaries — Pumptech and De.mem-Geutec – have grown by more than 60 per cent since being acquired.

More broadly, the Capic acquisition fills out De.mem’s product set as it looks to become a ‘one-stop shop’ for services spanning membrane-based water treatment and general maintenance of water treatment facilities, as well as a supplier of equipment, pumps and hydraulics.

“The Capic business has been integrated smoothly into the wider De.mem Group, with strong initial sales and a strongly growing sales pipeline,” Kroell said.

He reiterated the company’s strong trading momentum in the year to date, as it builds strong recurring revenues from a combination of organic growth, cross-selling and synergies from acquisitions.

“We look forward to updating the market as we continue to achieve our strategic growth milestones through calendar-year 2021,” Kroell said.

This article was developed in collaboration with De.Mem, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.