West Adams’ OriginClear Inc. has been in business for eight years with two different names and a handful of different business models, without ever reaching profitability. But in America, everything can be bought – including profits.

Earlier this month, the company made its first major acquisition, agreeing to buy a profitable water treatment company that’s projected to bring in about $6 million in revenue this year – more than four times the $1.3 million in total revenue Origin has seen since its inception.

The all-stock deal for Progressive Water Treatment Inc. of McKinney, Texas, which offers water treatment services to municipal and industry customers, could finally put Origin in the black. The deal, terms of which were not disclosed, is expected to close in October.

Origin has its own water treatment technology, called electro water separation, and Origin Chief Executive Riggs Eckelberry said now that the technology is fully developed, it was time to start acquiring firms in the water treatment business. It’s an industry where Origin can put its technology to work, and that’s fragmented, making it ripe for aggregation.

Origin plans to use a combination of its penny stock and backing from a Santa Barbara venture capital firm as part of a three-year plan to acquire five or more companies. Eckelberry hopes that plan will eventually result in the company’s shares being listed on a major exchange and drawing institutional analyst coverage – along with a robust bottom line.

It’s an ambitious growth plan, but one he calls a natural evolution for a company whose water treatment technology is reaching maturity.

“We’re a water treatment technology company,” Eckelberry said. “Acquiring a footprint in the water treatment industry makes sense, because eventually there’s a synergy. We’re doing what we were going to do when we grew up.”

Long evolution

Eckelberry, a former tech executive, and his inventor younger brother Nicholas started their company, first called OriginOil, in 2007, planning to grow and harvest algae that would be converted into biofuel. That didn’t quite work out as they envisioned – and the price of oil falling by half certainly didn’t help – but the process led them to develop a device that could remove both algae and other impurities from water.

They started licensing that technology to other firms in 2012, and found some customers in the oil and gas industry, which produces a lot of wastewater. The company also dipped its toes in aquaculture, but found that not to be an ideal fit, as fish farms don’t need water to be as clean as Origin’s technology makes it.

Now solidly focused on water treatment instead of algae and biofuels, the company in April changed its name to OriginClear. In July, the company received a patent on its electro water separation technology, which Eckelberry said was a huge milestone.

“We are very confident that we’ve ring-fenced our whole technology,” Eckelberry said.

That’s helped facilitate Origin’s transition from focusing on research and development to thinking about revenue.

Eckelberry tasked Senior Vice President Bill Charneski with seeking out potential acquisition targets, specifically domestic water treatment companies with revenue between $5 and $20 million. Charneski has narrowed it down to about 25 candidates.

According to data from Australian industry research firm IBISWorld, the water treatment and supply industry in the United States pulls in nearly $70 billion a year in revenue and more than $10 billion in profit. The research firm also expects further consolidation in what’s currently a highly fragmented industry. The top player, American Water Works Co. Inc. in Voorhees, N.J., controls less than 5 percent of the market.

That’s a major reason Eckelberry sees an opportunity in rolling up small companies. But he is adamant that Origin is not planning on changing the way acquired companies do business – just the technology they use to clean water.

“We’re not going to try to integrate these companies,” Eckelberry said. “I was acquired twice during the dot-com era and the acquiring company wanted to integrate and knew nothing.”

Stocking up

It’s one thing to roll up companies when you have Apple Inc.’s cash hoard, but it’s another being Origin, which has only about $181,000 in cash on hand, a market cap of less than $7 million and stock that trades for about a nickel a share.

Still, it managed to use those shares to buy Progressive.

“We know how to structure these deals to give our acquirees confidence,” Eckelberry said.

Origin gave Progressive’s sole owner, Chief Executive Marc Stevens, noninterest-bearing preferred stock that’s convertible to common shares in three annual increments, a structure designed to protect against a massive redemption of Origin stock at one time. Progressive employees also received stock options, which was a priority for Stevens.

Though Origin is a penny stock that trades over the counter, Stevens said he thinks getting shares from the company instead of cash was a good deal, giving him lots of upside potential. He also believes in Eckleberry’s technology.

“I think there’s a lot of growth potential between where they stand now and where they could be in a short time,” he said. “I’ve seen other systems and none have ever worked like theirs. That’s why I took the package I did.”

Eckelberry said many water treatment companies have longtime owners who might be wary of taking the immediate capital gains tax hit that would come with an all-cash deal, which Stevens said played a role in his decision.

Maybe more importantly, though, Eckelberry said he is not interested in funding anyone’s retirement with a big acquisition check, wanting sellers who are incentivized to stay on.

But if Origin comes across a seller who prefers all or mostly cash, Eckelberry can tap into the pocketbook of Santa Barbara’s Wings Fund Inc., which he describes as “kind of our informal VC”.

Wings did not respond to the Business Journal’s request for comment.

As Progressive and other treatment companies it plans to acquire bring in revenue and profit, Eckelberry expects Origin’s share price to get a bump, creating a virtuous cycle that could support further growth – just as long as the company doesn’t make one pivot too many.

“We will see a steady march in the stock price which will in turn fuel more acquisitions,” he said. “As long as we don’t screw around and buy a movie studio.”