SNE oil field, located 100 kms off the coast of Dakar, is the first oil discovery offshore Senegal and one of the world’s biggest oil discoveries in the last ten years. All the valves on this FPSO were manufactured by Velan ABV. (From Velan’s 2024 Annual Report)
Dear Reader: If you’ve been following this newsletter, you'll know that I haven’t sent out any investment write-ups so far. However, going forward, I think it would be interesting to share more concrete ideas. That’s why today I’m sharing a glimpse of the work I do at Forterra Investment Management. Forterra is an independent boutique investment manager specializing in wealth-creating smaller companies. If you want to find out more about Forterra, please visit the website at https://www.forterrainvest.com.
Given the ongoing market volatility and evolving tariff landscape, please note that the figures discussed here may need adjustment as new data emerges.
With that introduction, let's explore Velan Inc. (VLN), a Canadian small-cap company. I believe Velan presents an interesting situation, benefiting from some favorable tailwinds and including strong optionality.
As always, this information should not be considered investment advice. Please refer to the disclaimer at the end of this document. Additionally, I've prepared both a PDF and a Google Doc for your convenience, which you can download using the links below:
Velan Inc. (TSX: VLN), a global leader in industrial valve manufacturing, is positioned as a compelling turnaround story with significant potential for acquisition. Standing at a critical inflection point, Velan has recently taken major steps to eliminate its asbestos liabilities and divest key French subsidiaries. These moves significantly de-risk the business and generate substantial cash proceeds, positioning Velan for renewed focus on its valve manufacturing operations—particularly in the high-growth nuclear, defense, and energy transition markets.
Core Business & Competitive Edge
Velan is a global designer and manufacturer of industrial valves, with 12 manufacturing plants serving nuclear, oil & gas, LNG/cryogenics, pulp & paper, mining, shipbuilding (including defense), and chemical industries. Its deep expertise in critical, high-spec valves for nuclear and naval applications sets it apart. Stringent quality certifications (e.g., ASME) and a 75-year reputation for reliability create barriers to entry, support premium pricing on specialized valves, and drive strong customer loyalty.
Turnaround Actions & Financial Upside
Asbestos Liability Divestiture: Velan eliminated future exposure by transferring US asbestos liabilities to a third party, removing a longstanding overhang that deterred potential acquirers and complicated the balance sheet.
Sale of French Subsidiaries: The sale of Velan’s French operations (Segault/Velan France) for ~$198M eases state-imposed barriers to M&A and injects fresh capital. It also lets Velan refocus resources on higher-margin valves outside France.
Improved Margins & Growth: Recent quarters show rising gross margins (approaching high 30% range in Q3 FY2025) and a rebound in adjusted EBITDA. The backlog now stands at $298.7M, with 83% deliverable in 12 months, underscoring near-term revenue visibility.
Key Markets & Growth Drivers
Nuclear Renaissance: Velan holds a dominant position in nuclear valve supply, with valves in over 300 reactors worldwide. Partnerships with major reactor builders (e.g., GEH for SMRs, Westinghouse, Bruce Power) signal a robust pipeline in both new-build and plant life-extension programs.
Defense Sector: A sole source for valves on US nuclear submarines and aircraft carriers; further growth expected amid global defense spending upswing.
LNG & Cryogenics: Specialized cryogenic valves serve the growing liquefied natural gas and hydrogen markets, leveraging Velan’s R&D in ultra-cold applications.
Valuation & Possible Takeover
After removing asbestos liabilities and shedding its French operations, Velan appears far more attractive to large strategic acquirers (e.g., Flowserve, Emerson, etc.) that prize high-value, engineered flow-control businesses. Management is actively improving operational efficiency and a backlog-driven revenue ramp bolster the case for rerating or potential M&A.
Risks
Cyclical End Markets: Oil & gas demand, nuclear project cycles, and commodity prices can introduce revenue volatility.
Customer Concentration: Top 10 customers account for over 50% of receivables.
Execution: Must successfully convert backlog into profitable sales while integrating operational improvements.
Deal Closure: The two major divestitures (asbestos liability transfer and the French subsidiaries’ sale) must still navigate final closing conditions; any failure would reintroduce liabilities and erode the anticipated cash injection.
Supply Chain Disruption: Global logistics bottlenecks, raw material price swings, or supplier shutdowns can delay production and hamper profit margins. Risk of Global Tariffs: Tariffs and trade barriers could increase costs or restrict access to international markets, affecting international operations. Risk of Escalating Canada-US Trade War: An escalation in trade tensions between Canada and the US could affect the likelihood of a takeover, complicating cross-border transactions and strategic acquisitions.
Conclusion
Overall, Velan has repositioned itself as a de-risked valve specialist with a stable balance sheet, improving margins, and a deep backlog in specialized, high-growth segments. If management executes on recent operational enhancements—and given the now-clear path for a strategic takeover—Velan offers compelling upside for investors seeking exposure to global energy and defense infrastructure themes.
At current trading levels (roughly in the mid-teens Canadian dollars per share), the stock is trading near the prior takeover price, leaving room for upside if the business recovery continues. Our analysis finds that Velan’s intrinsic value likely exceeds the current price, supported by peer valuations and DCF modelling.
The Business: A Niche Carved in Steel
Basics
What do they do? Velan designs, manufactures, and markets industrial valves. Their valves are used in a variety of critical applications across many sectors, including power generation, nuclear, oil and gas, chemicals, LNG and cryogenics, pulp and paper, geothermal processes, shipbuilding, defense, and carbon-neutral technologies. The company emphasizes quality, safety, ease of operation, and long service life in its products. Velan also focuses on custom-designed complex solutions for demanding applications. The company has R&D centers in Montreal (Canada), Lucca (Italy) and Coimbatore (India).
How they profit Velan generates revenue through the sale of its industrial valves to customers worldwide. The company's revenue is impacted by factors including sales volume, product mix, and foreign exchange rates. Velan's business strategy focuses on customer-driven operational excellence and margin improvements, and accelerated growth through increased focus on key target markets where the Company has distinct competitive advantages, such as nuclear. The company also provides services and maintenance. It is important to mention that in this type of industry, safety and quality are the top priorities for the customer, even more than cost.
Why are they important Velan's valves are critical components in various industries, ensuring the safe and efficient operation of industrial processes. They provide solutions in sectors such as power generation, nuclear, oil and gas, and chemicals. The company's reputation for quality and reliability is paramount, particularly in demanding applications where failure can have significant consequences. Velan has established itself as a world leader in steel industrial valves, and the company's valves are of utmost importance for maintaining the integrity of critical infrastructure across multiple sectors.
It is important to mention that Velan was one of the suppliers of the first nuclear reactor in the US. They have been testing and refining their nuclear products for 60 years.
How has the business changed over time
Early Years: Velan was founded in Montreal in 1950 by A.K. Velan, initially focusing on steam traps and then expanding into valves. The company grew alongside the nuclear power industry in the 1960s and 1970s, developing products to address the industry's needs.
Growth and Diversification: Velan continued to expand its portfolio of valves for the power, oil & gas, and process industries. The company has established a global presence, with manufacturing facilities in several countries.
Leadership Changes: Velan has recently seen a transition in leadership, with the appointment of James A. Mannebach as CEO, who brings extensive experience in organizational transformation leading Emerson’s Process Flow Business (Velan main competitor) and also the Industrial Technology Division at Roper.
Velan Product & Services
Velan’s products are essential for its customers, addressing critical needs, and while facing potential commoditization in some of their segments, they are positioned in sectors that may see substantial growth.
What valves actually are and why are they important? In simple terms, valves are sophisticated on/off switches that control the flow of gases and liquids in industrial plants. They are important because many plants are designed to transport dangerous materials and the valves have to support high pressure conditions and extreme temperatures.
Velan sells a diversified portfolio of these industrial valves; including gate, globe, check, ball, triple-offset, butterfly, and control valves. This diversity allows Velan to serve a broad range of industries including:
Power generation (including nuclear, geothermal processes, etc.)
Oil and gas
Petrochemicals
LNG and cryogenics
Pulp and paper
Shipbuilding
Mining
Defense
HVACs
Carbon-neutral technologies
Velan's products function as "pain killers," these are products that are essential for its customers. The company’s valves are used in critical applications where safety and reliability are paramount. The failure of these valves can lead to significant consequences, including operational disruptions, environmental damage, and safety hazards. Industries such as nuclear, oil and gas, and chemical processing require high-quality valves to ensure the safe and efficient operation of their facilities. Therefore, Velan's products are not merely “nice-to-haves” but “must-haves” for its clients.
Velan’s Value Proposition Velan’s products alleviate several key pain points for its customers:
Ensuring Operational Safety: Velan's valves are designed to perform reliably in critical applications, reducing the risk of accidents and ensuring the safety of industrial processes. For example, in nuclear power plants, the reliability of valves is the most important factor to consider as it prevents potential disasters.
Maintaining Process Efficiency: High-quality valves help ensure that industrial processes operate smoothly without interruptions. Valve failure can cause downtime, leading to production losses. Velan's focus on quality and long service life ensures minimal disruptions.
Meeting Stringent Requirements: Industries like nuclear power and petrochemicals have demanding safety and quality requirements. Velan’s valves meet stringent quality and safety certifications like ISO 9001 and ASME. The company’s products are recognized for their ability to meet the needs of critical sectors, leading to high customer loyalty.
Reducing Maintenance Time: Velan provides products that allow for easy visual examination of joints during checks on-site which can reduce maintenance time, which is a key safety point to consider during the product design phase
Addressing Environmental Concerns: The company is also aligned with the increasing focus on energy-efficient solutions, as many customers are seeking to reduce their carbon emissions. Velan has dedicated resources to develop environmentally driven solutions.
Risk of Commoditization While Velan's valves are made from steel, a commodity material, the company is not solely selling a commodity product. Even though the company competes with manufacturers in low-wage countries, Velan differentiates itself through quality, safety, and reliability, focusing on providing valves for demanding applications. The company's investment in R&D also allows them to innovate and offer advanced solutions.
Their global presence, diversified customer base, and focus on critical applications also provide an edge in the market. The company has a preeminent brand globally that is a key part of its value proposition. Additionally, Velan focuses on providing custom-designed complex solutions for demanding applications, which helps reduce the risk of commoditization by providing specialty products rather than generic ones.
Product Cyclicality Velan's sales are generally cyclical. The demand for its products varies based on the level of economic activity in specific industries and markets. The company acknowledges that downturns in industries such as oil and gas can negatively impact sales. However, this cyclicality is mitigated by geographic diversification, the diversity of end user markets, the current nuclear upcycle, and a positive political view on the oil and gas industry in the US. Additionally risk mitigation is offered by the fact that a significant percentage of the business is aftermarket/MRO which is less cyclical.
Segment Tailwinds Velan serves sectors that are expected to see substantial growth over the next several years. Key growth areas include:
Nuclear Energy: Velan is a leading supplier of valves for the nuclear industry. With the growing emphasis on clean energy, nuclear power is expected to play a significant role, which should increase demand for Velan's products. The company has proprietary valve offerings for small modular reactors and a substantial installed base at existing nuclear reactors, which further positions the company to capitalize on increased demand.
Energy Transition: Velan is aligned with the trend towards energy transition. The company's product offerings are relevant in sectors such as LNG, which is a cleaner fossil fuel, and carbon capture, where Velan can play a critical role in the supply chain.
Defense: Velan plans to increase its reach in the defense sector. With global geopolitical instability, it is expected that there will be a greater demand for defense related products and services.
Oil and Gas: The company intends to continue focusing on this market and believes that it is still a key growth area.
Specialized Applications
Velan's expertise extends to specialized applications and the complexity of their products in these areas would be really difficult to copy for an up and coming competitor:
Nuclear: Velan is a key player in the nuclear sector, providing valves used in cooling systems, spray water, and chemistry control. Their valves are designed to meet the stringent quality and safety certifications required by the nuclear industry. Velan's valves for nuclear applications are qualified through a large number of tests and reports, with over 250 qualification reports certified by third parties. They are also developing new technologies for future generations of nuclear reactors.
Cryogenic: Velan offers a portfolio of cryogenic products, including control and isolation valves suited for applications involving LNG and hydrogen. Their cryogenic valves are designed with features such as high elastic restitution for perfect tightness at varying temperatures. They use Viton O-rings and expanded graphite rings for a fire-safe design. Velan cryogenic valves also feature a "no cavity" design to prevent the build-up of solids and allow for in-line servicing.
HF Alkylation: Velan produces valves for HF alkylation processes, which require specialized materials and designs.
Oxygen and Clean Gas Service: Velan also manufactures valves designed for oxygen and clean gas services.
Aftermarket Services
The aftermarket services is a profitable business segment that takes advantage of the massive installed base of Velan’s valves across the world. What they do in this area involves:
Repair and Refurbishment: Velan offers valve repair and refurbishment services. Their service program is supported by authorized service and modification shops.
On-Site Service: They provide on-site service for Velan valves, including commissioning, troubleshooting, process start-up studies, and valve repair.
Spare Parts: Velan offers OEM spare parts that are manufactured to their stringent quality standards for easy replacement. These parts are stocked at locations around the world to provide competitive lead times and expedited shipping.
Engineering Support: Velan offers engineering support, including analysis and know-how. Their service engineers can assist with valve and material specifications, maintenance recommendations, and allowable operating parameters.
Technical Support: Velan has a Technical Services department that maintains a database of product applications to support continuous improvement. Their service also helps maintenance personnel troubleshoot valve problems with their massive knowledge base.
Field Services: The company provides field service capabilities, such as in-line seat removal, seat welding, and lapping.
Velan’s Presence Around the World
Velan operates 12 manufacturing plants worldwide. These plants are strategically located across North America, Europe, and Asia.
More specifically, Velan's manufacturing footprint includes:
North America: 3 plants. Two plants are in Canada, and one is in the United States. One of the Canadian facilities is located in Granby, Quebec and another is in Montreal. The U.S. plant is in Williston, Vermont.
Europe: 4 plants. There are two plants in France (which are going to be divested if the transaction with Framatome closes in H12025), one in Italy, and one in Portugal. The two French facilities are located in Lyon and Mennecy, while the Italian facility is located in Lucca, and the Portuguese facility is in Lisbon.
Asia: 5 plants. Two plants are in South Korea, and one each in Taiwan, China, and India. The two South Korean plants are located in Ansan City. The Taiwanese plant is in Taichung, the Chinese plant is in Suzhou, and the Indian plant is in Coimbatore.
Velan also has two stocking and distribution centers, one in Houston, Texas, U.S.A. and the other in Willich, Germany. In addition, there are hundreds of distributors and over 60 service shops worldwide.
Velan has consolidated its North American manufacturing operations from four plants to three. This consolidation was part of a restructuring plan referred to as V20, which aimed to improve operational efficiency. As part of this restructuring, production of certain non-project valves produced in North America and less complex project valves were transferred to India. In addition, the company has also made adjustments to its manufacturing footprint in response to market demand. For example, one plant in Suzhou, China was certified to produce API 6D valves, allowing the plant in Lucca, Italy to focus on high-end products.
Customers
Customer Concentration While the company has been diversifying its customer base, concentration is still an important factor.
The financials of the company show a notable trend of customer concentration in its trade accounts receivable. As of February 29, 2024, the data highlights an improvement in diversification with two customers each accounting for more than 5% of receivables, notably lower compared to 2023 where four customers exceeded this threshold, including one at 15%.
However, by November 30, 2024, this pattern had reversed somewhat, with an increase to five customers each representing over 5% of receivables and one customer alone accounting for 11.2%.
During the same period, the top ten customers combined represented 56.7% of the total trade accounts receivable, pointing to a persistent issue of high customer concentration, although it has decreased from previous years.
While this customer concentration poses a risk, it also suggests that Velan has secured significant contracts with key clients in critical industries.
After the divestiture of the french assets, Velan’s sales by customer location are the following:
Pricing Power It depends on which type of valves and in which industry. In general, Velan faces some limitations in its ability to raise prices at will. The company operates in a competitive market, and competes with manufacturers in low-wage countries that offer valves at substantially lower prices. This means that Velan is not always a price maker.
The company acknowledges that it may not always be able to pass on increases in raw material costs to its customers. This means that its pricing power is limited by its cost structure and competition.
On the other hand, Velan's focus on custom-designed complex solutions for demanding applications and its preeminent brand globally may allow it to command premium prices in certain market segments such as defense or nuclear. But since the company does not report business segment data, it is difficult to assess overall pricing power capability.
There is an interesting opportunity though, in which management plans to take action in the coming quarters, within the after-market MRO. The company's brand and installed base also allow them to be more of a price maker here, increasing segment margins.
Recent Important Announcements
Velan has recently announced several significant agreements with key clients and partners, primarily in the nuclear sector, which indicate a strategic focus on leveraging its expertise and products in this growing market. These agreements include strategic partnerships, supply agreements, and memorandums of understanding (MOUs) that position Velan for continued growth in the clean energy sector.
Here’s a detailed summary:
Bruce Power Alliance Agreement:
Velan signed a 10-year alliance agreement with Bruce Power, one of Canada's largest nuclear power operators. This is a long-term supply agreement, where Velan will provide high-performance valves and related services.
This alliance agreement is valued at $50 million and could be expanded to $100 millions.
GEH SMR Technologies Canada Agreement:
Velan entered into a Masters Services Agreement (MSA) with GEH SMR Technologies Canada Ltd. to supply valves for a stand-alone small modular reactor (SMR) for Ontario Power Generation (OPG).
Under the agreement, Velan will provide GEH with advanced technology, engineering support, and leading-edge valves essential for the safe and efficient operation of the first BWRX-300 SMR. The initial order also includes a provision for three additional units to be deployed, with completion expected by 2034.
Westinghouse MOU:
Velan signed a memorandum of understanding (MOU) with Westinghouse to support nuclear newbuild projects in Canada and around the world.
Westinghouse is a significant player in the nuclear power market, with roughly 50% of the global reactor fleet and is actively developing SMRs and microreactors. This MOU offers Velan growth opportunities for its valve and flow control equipment.
This agreement indicates a strategic alliance with a major nuclear technology provider, leveraging their established position in the nuclear market.
This is an extension of past agreements, with Velan increasing its penetration in the nuclear market.
What Does This All Means for Velan? All these agreements signify a long runway of revenue for Velan, implying:
Focus on Nuclear: These agreements underscore Velan's strategic focus on the nuclear energy sector, aligning with the growing global demand for clean energy solutions.
Long-Term Growth: The long-term nature of these agreements, especially the 10-year Bruce Power alliance and the multiple unit provision with GEH, provides Velan with long-term revenue opportunities.
Technology Leadership: Velan’s proprietary valve technology, particularly for small modular reactors, is a key differentiator.
Global Reach: The agreements with Westinghouse and other international partners demonstrate Velan's ability to secure newbuild projects globally.
The Industry: Flowing Against the Tide
Velan operates in the industrial flow-control industry, which is cyclical and closely tied to capital investment in energy and infrastructure.
Current industry trends are mixed-positive. On one hand, global energy infrastructure spending (especially in LNG, downstream oil & gas, and chemical processing) has been recovering, which drives demand for new valves. Velan’s increase in bookings in regions like North America and Germany for oil and gas projects reflects this trend. The nuclear power segment is also a niche strength for Velan – with a global push for low-carbon energy, maintenance and new-build activity in nuclear has provided opportunities.
On the other hand, the industry faces challenges: supply chain disruptions and inflation have been significant in recent years. Velan cited logistics and operations problems (e.g. shipping delays, component shortages) that impacted deliveries in 2022. Cost inflation in materials and labor (the price of raw materials, particularly steel, represents a significant portion of the cost of manufacturing valves) can squeeze margins if not passed to customers, although Velan’s recent results show margin improvement as some pressures eased or were managed.
Competition in the valve industry is another key factor. Velan’s competitors include much larger diversified players like Flowserve, Emerson (Fisher valves), Crane Co., and IMI/KSB, as well as specialized local manufacturers. The competitive landscape is global and intense on large projects, often based on technical qualifications, performance track record, and price. Velan has carved out a reputable position, especially in high-end applications (its brand is often associated with quality in severe service and nuclear valves). Industry consolidation is an ongoing trend – the attempted acquisition of Velan by Flowserve is indicative of larger players looking to expand product lines via M&A.
The industry is broadly divided between manufacturers of standard commodity valves and those producing highly engineered valves like Velan. Competition is typically more intense in the commodity valve segment, while the engineered valve segment experiences relatively less competition.
Competitors
Velan operates in a highly competitive and fragmented global industrial valve market, facing various competitors across different segments. Below are some examples:
Core Competitors
Flowserve Corporation (USA): A century-old leader in engineered valves for oil/gas, chemical, and power industries, known for customized solutions and robust R&D.
Emerson Electric (USA): Dominates automation and valve tech with innovations in diagnostics and control systems, serving sectors like water management and petrochemicals.
Specialized Valve Manufacturers
IMI plc (UK): Focuses on precision fluid control valves for power generation and life sciences, emphasizing energy efficiency.
Cla-Val (USA): Competes in industrial machinery with strong regional presence in flow control systems.
Hy-lok (Canada): Edmonton-based rival in industrial suppliers.
Severe Service Valve Focus
KSB Group (Germany): Global leader in pumps/valves for extreme conditions, overlapping with Velan’s nuclear and petrochemical markets.
Bray International (USA): Provides automation-ready valves for harsh environments, including cryogenic and high-temperature applications.
In general, Velan differentiates through nuclear-grade valves and forged steel products for severe service, but faces pricing pressure from cost-efficient Asian manufacturers like Plumberstar.
Industry Benchmarking
With the divestitures, Velan’s scale and financial metrics will shift, so it’s important to compare Velan’s performance and positioning relative to peers in the flow control and industrial valve sector. Key competitors include large players like Flowserve Corporation (FLS), which is a global pump and valve manufacturer, as well as regional players such as KSB SE & Co. (a German pump/valve firm), and other valve specialists. Below is a benchmarking of Velan versus these peers on several dimensions:
Revenue Size & Growth
Velan’s annual revenues (pre-divestiture) were $346.8 million in FY2024 , making it a mid-sized player in the valve industry. Post-sale, revenue will drop (roughly to the $250–$300 million range). In contrast, Flowserve’s revenues are on the order of $4 billion annually – an order of magnitude larger – and KSB’s revenues were about €2.8 billion in 2023 (approx $3.0 billion). Thus, Velan will be a niche player compared to these giants.
Flowserve’s revenue growth for 2024 was close to 6%, and it is forecasting further growth in 2025. In short, Velan’s growth has lagged the industry average recently. However, Velan’s order backlog tells a more positive story – it reached a record $491.5 million at Feb 2024 (which is 1.4x its FY2024 sales), indicating that Velan had new business in the pipeline.
The challenge has been converting that backlog to revenue. Peers like Flowserve also built strong backlogs during the same period (Flowserve reported record backlog entering 2024, given robust orders for energy projects). The industry overall is in an upswing due to energy infrastructure and maintenance cycles, so Velan is operating in a growing market.
Post-divestiture, Velan will lose the portion of backlog and growth associated with its French nuclear business, but it will still participate in global nuclear/industrial markets outside France, where demand (e.g., small modular reactors, LNG, etc.) is growing. Bottom line: Velan will be much smaller than leading competitors and needs to improve its execution to keep pace with peers’ growth rates.
Profitability and Margins
Velan’s profitability has historically been below peers’ levels. In FY2024, Velan’s gross margin was 26.9% and its EBITDA margin (adjusted) was around 5%. On an IFRS basis, operating margin was near 0% (essentially break-even before special items).
By contrast, Flowserve’s gross margins and operating margins are higher. Flowserve’s gross profit margin was about 31.5% in 2024, and it achieved an operating margin of roughly 10.6% in Q42024. Flowserve is targeting operating margins of 10%+ in the near term and 14–16% long-term, reflecting far better efficiency.
KSB likewise improved profitability – KSB's EBIT margin increased from 7.9% in 2023 to 8.2% in 2024, whereas it was closer to 3% in 2022. Even mid-sized peers that were public (e.g., CIRCOR International before it was taken private) operated with EBITDA margins in the low double-digits.
Velan, in contrast, has struggled to consistently generate profits: it posted net losses in each of the last two fiscal years. Even on an adjusted basis, Velan’s FY2024 return on sales was barely positive. One reason is that Velan’s cost structure was burdened by litigation and some underperforming operations (issues now being resolved). Also, as a smaller company, Velan may lack the economies of scale that larger players have in manufacturing and procurement.
Post-divestiture margins: It’s possible that Velan’s margins could improve once the remaining business is more focused and freed from legacy costs. The French business being sold was actually a relatively high-margin niche (serving nuclear clients who typically pay for quality), so losing that might slightly dilute Velan’s gross margin. However, Velan’s continuing operations showed strong margin improvements recently – for instance, in Q3 FY2025, the continuing ops gross margin was 38.6% (helped by a favorable sales mix), demonstrating that the remaining business can achieve healthy margins.
If Velan can sustain mid-30s gross margins and streamline overhead, it could target high EBITDA margins, closer to peers. At present though, Velan significantly trails competitors in profitability. This is an area where management needs to execute better to be competitive. The removal of interest expense (due to no debt) will help net margins, but the real gap is at the operating level, where Velan must reduce costs and improve productivity to approach peers’ margin levels.
Debt and Leverage
Velan (post-transaction) will have virtually zero debt, which is a very strong position relative to peers. Velan historically had modest debt – even before these deals.
After the French assets sale, Velan will extinguish this debt and likely hold net cash. In comparison, Flowserve carries a higher debt load (as a large company it has issued bonds and uses credit lines). Flowserve’s net debt was roughly $500–600 million in recent years, resulting in a net debt/EBITDA ratio of about 2x, and it maintains an investment-grade credit rating (BBB-).
KSB tends to be more conservatively financed; it often runs with a net cash or low-net-debt position (many German industrials are relatively low-leveraged).
Smaller U.S. peers like CIRCOR had much higher leverage (which contributed to them being acquired by private equity). So Velan’s debt level is more conservative than the industry norm – many industrial manufacturers carry some debt to optimize capital structure, whereas Velan will have virtually none. This means Velan has lower financial risk and interest costs than peers, but it also means potentially a less “efficient” balance sheet (excess cash yields low returns).
That said, given Velan’s challenges with profitability, being debt-free is prudent. It cannot currently support heavy debt service, so this clean balance sheet is a competitive advantage in terms of resilience. In any downturn or if projects get delayed, Velan won’t have creditors at the door. Peers like Flowserve with higher fixed obligations need to be more careful in downturns.
In summary, Velan will be one of the few essentially debt-free companies in its sector, trading higher financial safety for lower leverage. This positions it well to weather economic cycles and possibly gives it capacity to raise debt later if needed for expansion.
Free Cash Flow Generation
Velan’s track record on free cash flow has been mixed. In FY2023, Velan had negative operating cash flow (due to the big asbestos payout and working capital needs), and in FY2024, cash flow improved but was still only around breakeven over the full year (operating cash was slightly positive, and after capex, FCF was likely near zero).
Peers generally have better FCF. For example, Flowserve in 2023 improved its cash generation – by Q3 2024, Flowserve highlighted “meaningful… improvements in cash flow” and was on track for strong full-year FCF as margins rose. KSB’s business, being project-based, also has fluctuations, but its profitability uptick in 2023 means it likely converted more of earnings into cash.
Velan did show an encouraging trend in the first half of FY2025: $15 million operating cash flow in six months, thanks to higher earnings and better working capital management. If that trend continues, Velan’s free cash flow in FY2025 could be solidly positive – a welcome change.
Relative to peers, Velan’s cash conversion had been poor (due to low earnings and significant inventory builds). The benchmark to aim for: peers like Flowserve typically convert a good portion of EBITDA to cash (Flowserve’s FCF margin has been in the mid-single digits as a % of sales). KSB reported a free cash flow of €100+ million in 2022 despite lower margins, which is ~3-4% of sales.
Velan’s FCF as a % of sales has been near 0% or negative recently, so there’s room for improvement. With no dividend drain (Velan’s dividend is minimal) and no asbestos payments going forward, nearly all operational cash can feed growth or actual free cash.
Strong free cash flow is an area where the best industrials (like some peers) differentiate themselves, and it remains a goal for Velan to achieve consistent positive FCF.
Market Position and Focus
Velan’s product portfolio is centered on industrial valves for demanding applications (especially in nuclear power, oil & gas, and other energy or industrial processes).
In its niches, Velan has a strong reputation – for example, it’s a leading supplier of valves for nuclear reactors globally, with proprietary designs and a large installed base. However, after selling the French units, Velan will exit the direct servicing of France’s nuclear industry (since Framatome will own those businesses).
Velan will still supply nuclear valves in North America (where it has worked with clients like Ontario Power Generation) and elsewhere. This leaves Velan as a major North American player in nuclear valves at a time when nuclear power investment is increasing (small modular reactors, life extensions of plants, etc.).
Competitors in nuclear valves: Flowserve also serves the nuclear sector (Flowserve’s Vogt and Edward valves, for instance, compete in that space), as do Japanese firms and smaller specialists. With Framatome taking over Velan’s French operations, Velan may actually partner or compete with Framatome internationally.
Outside of nuclear, Velan makes valves for oil & gas, LNG, petrochem, and general industry. Here it faces big competitors: Flowserve, Emerson (which owns valve brands like Fisher), Crane Co., IMI plc, Sampson, KITZ (Japan), etc.
Velan’s post-divestiture market positioning will be as a focused, high-end valve maker, but with a smaller geographic footprint. It will have manufacturing in North America, and likely still some presence in Asia (Velan has plants in Korea and Taiwan, etc., plus a minority stake in an Indian JV if still retained).
The French sale does concentrate Velan’s market: essentially North America, India, and some other export markets.
Relative to competitors’ market share: Flowserve and Emerson are far larger and offer full flow-control solutions (pumps, seals, automation, etc.), whereas Velan is primarily valves. This means Velan often serves niche roles or is a second-tier supplier on global projects.
The company emphasized that it “continues as a leader in flow control solutions for clean energy and other industrial sectors” and that it is “well-positioned… in the clean energy sector, including nuclear”. Velan’s strategy is to double down on niches where it can be a leader, rather than try to match the breadth of Flowserve.
Customer base and project wins: Velan has historically secured large orders. Peers like Flowserve also announce large project bookings (Flowserve recently won >$100M in nuclear awards in one quarter). So in the marketplace, Velan can compete for critical-service valve orders, often leveraging its technical expertise.
Capital Allocation and R&D
Comparing how Velan and its peers invest and return capital can provide insight into management priorities.
R&D Investment: Velan’s R&D expenditure was about $6.2 million in FY2023 (with net $4.8 million after tax credits). This is roughly 1.7% of sales. In FY2024, it was $6.06 million (with net $4.73 million after tax credits).
Large peers typically invest a bit more: Flowserve spends roughly 2–3% of sales on engineering and R&D (which would be on the order of $80–$100 million for Flowserve).
KSB also invests in product development for pumps/valves at a few percent of sales. So Velan’s R&D intensity is slightly lower, but not dramatically so for an equipment manufacturer.
The company likely relies on its decades of engineering experience and customer-specific development (often funded as part of projects) rather than big central R&D budgets. Post-divestiture, Velan has indicated it will be looking at “greater investments in growth opportunities” – which likely includes product development in some advanced areas (for example, advanced nuclear valve technology, hydrogen service valves, carbon capture-related equipment, etc.). Being debt-free means Velan can allocate more cash to R&D if needed.
M&A Activity
Velan’s capital allocation so far has been conservative – no major acquisitions (the last notable one was years ago when it acquired partial stakes in some foreign entities like Segault and ABV). In fact, Velan just completed the buyout of the remaining 25% minority in Segault in September 2023 for €4.7M, only to now sell Segault entirely to Framatome. So Velan’s M&A has been more tactical.
Post-deal, with cash available, Velan could consider strategic acquisitions. We might see Velan shift to a growth-through-acquisition mindset once it stabilizes – something peers have done to great effect in the fragmented flow control sector, if it’s not taken over.
Shareholder Returns (Dividends/Buybacks)
Velan’s shareholder return policy has been minimal. The company has traditionally paid only a token dividend – for example, a $0.03 CAD per share dividend was declared in the recent quarter. This is a very small payout (Velan’s stock trades in the teens, so $0.03 CAD is a fraction of a percent yield).
In some years, Velan skipped dividends when losses mounted, indicating it’s not committed to a steady payout. No share buyback programs have been notable, and the share count has remained stable (21.6 million shares), implying no significant repurchases. In contrast, many peers reward shareholders more directly.
Flowserve, for instance, pays a regular quarterly dividend (approximately $0.21 per share, about a 1.34% annual yield at recent prices) and has engaged in share buybacks in the past when cash flow allowed. Other industrial peers also tend to return capital via dividends in the 1–3% yield range and occasional buybacks.
Velan’s approach reflects its priority to conserve cash for operations – understandable given its recent turnaround efforts. After becoming debt-free, Velan might reconsider its capital return policy, but given its focus on growth, significant dividends or buybacks are likely not immediate priorities.
Instead, any excess cash will probably be used to strengthen the business rather than be distributed, at least until consistent profitability is achieved. From an investor’s perspective, Velan’s total shareholder return historically lagged peers – not just due to limited dividends, but also because the stock’s performance was lackluster prior to the attempted Flowserve buyout (which gave a one-time boost).
Peers like Flowserve or KSB, while not high-flyers, delivered some return via dividends and stock appreciation as their earnings grew. Velan’s future attractiveness to investors will depend on it closing the profitability gap; with the risk reduction achieved by these transactions, Velan may now trade more in line with industry averages on metrics like EV/EBITDA, but it must deliver results to earn a peer-like valuation.
In sum, Velan trails its industry peers in growth and profitability, although it is moving to correct that by shedding distractions and liabilities.
Its peers set a benchmark of mid-to-high single-digit operating margins and steady growth – targets that Velan’s management will strive to reach in the coming years. The recent strategic moves give Velan a fighting chance to improve and perhaps eventually re-attract acquisition interest (possibly from another peer) now that the French regulatory hurdle is sidestepped by selling the French operations separately.
At the very least, industry benchmarking shows where Velan needs to improve (margins, growth) and where it stands out (balance sheet strength, niche leadership).
The Moat: Pressure-Tested Protection
Velan's competitive advantage stems from several sources that create a moat around its business. It depends on the business segment, but these advantages are not easily replicable by competitors and contribute to its long-term viability and profitability:
Global Reach and Diversified Operations: Velan operates manufacturing facilities in nine countries and serves clients in over 60 countries. This global footprint provides diversification, reducing reliance on specific markets, and allows for capturing growth opportunities worldwide. This is a key competitive advantage as some clients demand local manufacturing and supplies.
Stringent Quality and Safety Certifications: The company holds ISO 9001 and ASME certifications. These certifications are essential in demanding industries such as nuclear power and petrochemicals. Meeting these standards is costly and time consuming, making it difficult for new entrants to compete.
Reputation for Quality and Reliability: Velan's products are known for their quality and reliability, especially in critical applications. This reputation, built over 75 years, leads to customer loyalty and long-term contracts, providing a stable customer base. Velan was a supplier in the first nuclear reactor built in the US.
Expertise in Demanding Applications: Velan specializes in creating custom, complex solutions for demanding applications. This expertise, developed over decades, is difficult to replicate and caters to specialized customer needs, particularly in sectors like nuclear and cryogenic industries. The focus on engineered solutions allows them to command a higher price for specialized products.
Proprietary Technology in Nuclear Sector: Velan has proprietary valve offerings for small modular reactors (SMRs) and a large installed base of valves in existing nuclear reactors.
Operational feedback: Velan has been developing valves in cooperation with clients for 20 or 30 years, this generates a virtuous cycle difficult to replicate.
Installed Base: Velan's substantial installed base at existing nuclear reactors provides significant potential for maintenance, upgrades, and life-extension projects. This creates a recurring revenue stream and further cements customer loyalty and provides an advantage as customers will be more likely to choose the same company to provide services or new valves for their installed equipment.
Stability and trajectory: Finally, clients planning for critical valve procurement want to be sure that they can count on the supplier in the future when they need spare parts and maintenance. Velan 75 years of history assures them about that.
Above all, clients look for quality and safety. Velan’s long reputation in this area plus the certifications is something that could take years for a new competitor to replicate.
There’s also high switching costs after a customer opts for Velan. This is due to:
Customized Solutions: Velan provides tailored solutions, meaning a switch to a different provider requires re-engineering and qualification of new valves, which can be expensive and time consuming.
Quality and Reliability: Switching to a less established provider could lead to costly operational disruptions and safety concerns.
Regulatory Requirements: In industries like nuclear, the regulatory hurdles of switching suppliers are very high as new equipment would need to be re-certified.
Installed Base: Customers with a significant installed base of Velan valves benefit from economies of scale from both a maintenance and operations perspective. Switching to an alternate supplier would disrupt this.
In conclusion, Velan has several layered advantages that collectively form a good moat around its business. Its global presence, reputation for quality, expertise in critical applications, certifications and proprietary technology in the nuclear sector provide significant barriers to entry for competitors. While the company faces challenges from low-cost manufacturers and must manage material cost risks, its strategic initiatives are making sure that they keep these challenges at bay.
Nuclear Dominant Position
Nuclear is a special segment for Velan, as they are leaders in the industry. Velan has an installed base of thousands of valves in over 300 nuclear power plants. Many of these valves continue to operate after more than 40 years of uninterrupted service.
If we consider that there are 440 active reactors worldwide, then that’s at least 70% market share. Velan valves are installed in 98% of American and French nuclear power units, and all British and Canadian units.
Adding to this, Velan has valves installed in more than 950 US Navy and NATO ships, all US Navy nuclear submarines, and nuclear aircraft carriers and 22 French nuclear submarines.
If we think about nuclear technologies, Velan is a leading valve supplier for all of them:
Their valves are installed in all CANDU (PHWR) stations, in a majority of PWR and BWR stations, and in many other reactor types including GCR, AGR, LGR, VVER, HTGR and LMFBR.
Velan has longstanding experience in reactor technologies such as PWR, EPR, VVER, HUALONG, AP1000, BWR, PHWR, CANDU, FBR, AGR, and HTR.
Growth Levers: Backlog to Breakthrough
Velan Inc. has several favorable growth prospects, driven by strategic initiatives and market conditions, with a focus on specific sectors and a commitment to increasing shareholder value.
Organic Growth
Velan has multiple avenues for organic growth, supported by its existing market position, strategic initiatives, and industry trends. Here's a detailed breakdown:
Nuclear Sector Expansion
Growing Market: The global nuclear sector is experiencing a multi-year growth cycle, driven by the increasing demand for clean and sustainable energy sources.
Existing Installed Base: Their extensive installed base provides a strong foundation for repeat business through maintenance, upgrades, and life-extension projects.
Small Modular Reactors (SMRs): Velan is well-positioned to capitalize on the emerging SMR market with its proprietary valve offerings. They have secured agreements and alliances with key players like GEH and Westinghouse, indicating a first-mover advantage in supplying SMRs.
Nuclear Navy: Velan is the only manufacturer to supply nuclear valves to all US Navy nuclear aircraft carriers and submarines, providing an exclusive channel for continued growth in this sector, albeit US tariffs could generate some noise in the relationship.
Life Extension and Renewal: Velan is also focused on the market for life extension and renewal of existing nuclear power plants, which provides additional opportunities given their existing installed base.
Geographic Expansion
Emerging Markets: Velan is targeting growth in emerging markets in the Asia-Pacific, Africa, and Middle East regions, where investments in energy and industrial infrastructure are increasing.
Localization of Production: The company is establishing local production capabilities in strategic markets to reduce costs, improve delivery times, and respond more effectively to local customer needs. This approach also facilitates quicker response times to localized projects, and provides support in different languages.
Partnerships and Joint Ventures: Forming strategic partnerships and joint ventures with local companies strengthens Velan's presence in these regions. For example, the joint venture with a Saudi partner in Velan's Italian operations has helped the company establish a presence in the Middle East, which is the largest valve market in the world.
Distribution Network: They have a distribution network of hundreds of distributors worldwide which helps broaden their reach, and may be a lever for growth in existing and new markets.
Diversification into Other Sectors
Renewable Energy: Velan can supply valves and control solutions tailored to wind and solar energy infrastructure. For example, solar thermal power plants require robust valves for high-temperature fluid management.
Hydrogen: Velan can develop cryogenic valves and control solutions for the production, storage, and distribution of hydrogen, which is becoming a viable option in the energy transition.
Oil and Gas: Velan has a strong presence in the oil and gas sector, with a customer base spanning approximately 90% of North America's oil refineries and a growing presence throughout the world.
LNG and Cryogenics: The company's portfolio of cryogenic products, including control and isolation valves, positions them to capitalize on the growing demand for LNG and hydrogen.
Carbon Neutral Technologies: Velan sells valves designed to reduce fugitive emissions, and is dedicated to environmentally driven solutions.
New Product Introductions: Velan is also introducing new products, such as the Torqseal® 2.0 triple offset valve, to meet evolving industry needs. They also have a dedicated coatings research division.
In summary, Velan Inc. has favorable growth prospects driven by a focus on high-growth sectors and strategic expansion. Now let’s take a look at the strategic initiatives the company is undertaking that could contribute in a big way to improved profitability.
Strategic Initiatives
Velan has recently undertaken several strategic initiatives aimed at improving its margins, including both operational and financial actions. These initiatives are designed to reduce costs, and increase profitability. Here is a detailed breakdown of these efforts:
Sale of French Subsidiaries
Strategic Rationale: Velan has entered into an agreement to sell its French subsidiaries, Segault and Velan France, to Framatome, a leader in the nuclear energy sector. The transaction now allows them to try to reflect full value for Velan by removing what would be looked at as a protected asset with only a few (French) buyers.
Financial Gains: The transaction is valued at 192.5 million euros (approximately $198.4 million USD), including the transfer of an intercompany loan of 23.2 million USD. This provides a significant cash injection.
Revenue Multiple: The French segment had LTM (Last Twelve Months) revenue of $98 million USD, which puts the transaction multiple at approximately 2x revenue.
EBITDA Multiple: We estimate the multiple of the transaction to be between 18-22x EV/EBITDA range.
Divestiture of Asbestos Liabilities
Strategic Move: Velan has entered into an agreement to divest its asbestos-related liabilities. This involves transferring these liabilities to Global Risk Capital, a specialized liability management company. It is worth mentioning that this transaction is not conditional to selling the french subsidiaries.
Transaction Benefits: removes the risk for any potential buyer and removes an ongoing distraction for management.
Financial Impact: This transaction will eliminate the company's financial exposure to ongoing and potential asbestos-related claims. This reduction in risk is expected to improve the company’s financial stability and overall valuation. The divestiture involves a payment from Velan of $143 million and $7 million from the buyer to capitalize the US subsidiary affected by the lawsuit.
Margin Improvement: By removing these liabilities, Velan can avoid current and future legal and settlement costs, directly contributing to improved profitability and net margins.
Operational Efficiency Improvements
Production Optimization: Velan is modernizing its facilities and adopting advanced technologies to improve productivity, reduce lead times, and lower production costs. This includes the optimization of production processes through investments in technology and infrastructure.
Lean Manufacturing and Six Sigma: The company implemented lean manufacturing principles and Six Sigma methodologies to streamline processes and eliminate waste in recent years. These initiatives are part of a Total Process Improvement Program.
Procurement Efficiencies: Velan is working to capture procurement efficiencies to reduce material costs, although this is still in early stages.
Cost Reduction Measures: The company has implemented cost reduction measures to improve overall operational efficiency and profitability.
Strategic Focus on High-Margin Sectors
Nuclear Sector Growth: Velan is capitalizing on the growing demand for clean and sustainable energy solutions by focusing on the nuclear sector, where it holds a significant market share. The company is well-positioned for a multi-year growth cycle in the nuclear sector.
Proprietary Valve Offerings for SMRs: The company is developing proprietary valve technologies for small modular reactors (SMRs) to capitalize on the emerging market.
Cryogenic Valve Technology: Velan's portfolio of cryogenic products for applications like LNG and hydrogen is a key area of R&D investment. This focus on advanced technology allows for higher margin sales.
Energy Transition Markets: Velan is focusing on other energy-related markets, like oil and gas and LNG, where they can capitalize on customers' net zero objectives.
The V20 Program
Objective: The V20 program was a transformation strategy aimed at improving Velan's competitiveness, leveraging assets, and unlocking bottom-line improvements.
Implementation: The V20 plan was initiated in January 2019, with accelerated deployment even amidst the COVID-19 pandemic.
Key People: Yves Leduc, the CEO at the time, guided the company through the V20 program. The Board of Directors also unanimously approved and supported the V20 plan.
Key Pillars and Strategies:
Manufacturing Consolidation: Velan intended to consolidate its North American manufacturing operations from four plants to three to optimize its manufacturing footprint and improve operational efficiency.
Plant Reconfiguration: Plants in Canada and India were reconfigured for a less vertically integrated manufacturing model.
Customer-Driven Operational Excellence: Emphasis was placed on improving operations to better meet customer needs.
Margin Improvements: The plan aimed to improve margins, particularly in North American operations.
Focus on Key Target Markets: Velan intended to increase its focus on key target markets where it had distinct competitive advantages.
System Modernization: Continuously improving and modernizing Velan's systems and processes was a key goal.
Results: V20 led to highest backlog since fiscal year 2013.
Financial Analysis: Engineering a Turnaround
We will now examine the financial statements prior to the announced transactions, followed by an analysis of the pro forma statements as provided by management.
Pre-Deals Closure Financials
Income Statement
Velan’s sales have declined over the past three fiscal years, from $411.2 million in FY2022 to $370.4 million in FY2023 and $346.8 million in FY2024 (FY2024 ended in 02-2024). Gross profit fell in tandem (from $135.0 M to $93.2 M) as margins compressed (gross margin dropped from ~33% in 2022 to 26.9% in 2024). Net income has been negative each year, with a large net loss of $55.5 M in FY2023 (driven by one-time charges) improving to a $19.7 M loss in FY2024. On an adjusted basis (excluding asbestos provisions and other one-offs), Velan was near breakeven in FY2023 and still posted a slight loss in FY2024.
The key figures are summarized below:
In the past, the company’s revenues have been somewhat cyclical, influenced by project-driven order flow. In FY2024, order bookings increased to $374 M (up ~6% YoY) and backlog reached $491 M (exceeding one year of sales) indicating stronger demand ahead. However, execution delays and supply chain challenges in prior years led to inconsistent revenue – sales declined in both 2023 and 2024 despite a robust backlog.
Having a lower sales volume hurt absorption of fixed production costs, pressuring margins. Going forward, the record backlog gives confidence that FY2025 sales should rebound above FY2024 levels assuming the company can convert orders to shipments more efficiently.
Operating expenses consist primarily of administration costs (which include SG&A and R&D). Excluding unusual items, core admin expenses improved in FY2024 – $86.3 M (24.9% of sales) vs $100.8 M (27.2% of sales) in FY2023 – reflecting cost-cutting and lower freight and commission expenses.
The company’s employee costs make up a large portion of expenses (wages and salaries were $84.1 M in FY2024). Velan also invests in product development; it capitalized ~$2.1 M of development costs in FY2024 (net of R&D tax credits) as intangible assets.
FY2024 adjusted EBITDA was $17.8 M, higher than the $5.3 M EBITDA under IFRS, because $12.5 M of one-time costs (a $10 M asbestos provision increase, $1.3 M in severances, and $1.2 M of acquisition-related costs) were added back. Adjusted EBITDA excludes significant unusual items like asbestos liability provisions, restructuring costs, and transaction expenses.
Overall, while the company has been streamlining operations (e.g. workforce reductions with $1.3 M in severance charges in FY 2024) its profitability is very sensitive to volume because of high fixed overhead.
Balance Sheet
Velan is undergoing a significant transformation through the sale of its French subsidiaries and the divestiture of asbestos liabilities, leading to a strong pro forma cash position and paving the way for a potential sale.
Currently, only 9% of current assets are in the form of cash and that’s mainly because of 3 reasons:
Given their sensitivity to supply chain disruptions, management prefers to carry a higher level of inventory than usual. Let’s remember that we also have a backlog of approximately $250 million deliverable in the next 12 months. Below is total backlog evolution for the continuing operations after the divestitures.
There’s a portion of assets held for sale, namely the French assets.
Following the completion of the sale of the French subsidiaries and the divestiture of asbestos-related liabilities, management anticipates a pro forma cash and cash equivalents balance of approximately $65 million. This projection is based on the understanding that the company will receive net cash proceeds of approximately $30 to $32 million from the two transactions.
With the assets for sale gone, additional cash generated during the quarter and the net positive proceeds after the two transactions, we expect a much better looking balance sheet in Q4 2025 or Q1 2026.
Cash Flow Analysis
Velan generated $4.3 M of cash from operating activities in FY2024, an improvement from essentially break-even $0.5 M in FY2023.
In FY2024, depreciation and amortization ($11.2 M total) and the $10 M asbestos provision (a non-cash charge) added back to cash flow. More importantly, working capital changes contributed cash in FY2024: roughly $9.8 M was released from working capital over the year. This was driven by reductions in inventory (particularly in the fourth quarter) and higher customer deposits. In contrast, FY2023 saw a large working capital build (using $11.6 M cash) as inventory increased and receivables weren’t fully offset by payables.
The swing in working capital was a key factor in the cash flow turnaround. Specifically, inventory levels, which had grown earlier, were drawn down or sold in late FY2024 (inventory change contributed +$4.25 M to cash in FY2024 vs –$14.2 M in FY2023).
Accounts receivable provided a small $2.6 M cash (they declined slightly), and accounts payable increased, providing $8 M cash. This indicates Velan managed its working capital more efficiently.
Overall, operating cash flow has been weak but turning positive, reflecting the company’s low-margin profile but also that a large portion of the recent “losses” were non-cash. Velan’s operations have not burned significant cash outside of working capital swings – even in the worst recent year (FY2023), CFO was roughly neutral, showing that the company did not hemorrhage cash in its downturn.
Free Cash Flow and CapEx: Free cash flow (FCF) was negative $2.54 M in FY2024, but this was a smaller outflow than the –$3.85 M FCF in FY2023.
The improvement is due to higher operating cash and despite higher CapEx. Velan increased its capital expenditures to $6.84 M in 2024 from $4.37 M in 2023.
This spending went into property, plant, and equipment upgrades (e.g. $2.9 M invested in Q4 alone), maintenance capex and select growth projects.
Additionally, around $2.4 M was invested in intangible assets (software, development) over the year. Even with these investments, FCF was close to break-even, showing the company is managing to fund its capex internally.
Depreciation vs. CapEx: Depreciation was higher than capex in recent quarters, which suggests Velan has been under-investing relative to asset depreciation for a couple of years (indeed, net PPE shrank slightly from FY2022 to FY2023 and held steady in FY2024). This could mean the company has some capacity to increase capex if needed, but it also implies they have not been in expansion mode. The positive aspect is that even during restructuring, Velan maintained some capital investment (nearly 2% of sales in FY2024), indicating they may be keeping equipment and systems up to date.
Working capital as a use/source of cash: It’s clear that working capital swings dominate Velan’s short-term cash flow. The big inventory build in FY2023 was a cash drag, whereas in FY2024 the company unwound some of that, helping cash flow. As the backlog is delivered, we should expect working capital (especially inventory and customer advances) to normalize – potentially inventory will convert to cash, but customer deposits might also convert to revenue (reducing that liability). Monitoring FCF after adjusting for these swings provides a sense of earnings quality. In FY2024, if we neutralize the working capital contribution, core FCF would have been more negative, so continued improvement in profitability is needed to sustainably generate positive free cash.
Cash Flow Alignment with Earnings: Velan’s net income and operating cash flow have diverged due to large non-cash charges. For instance, in FY2023 the company reported a $(55.5) M net loss, but operating cash flow was essentially $0.5 M positive. The $56 M asbestos provision in 2023 was an accrued expense that did not use cash in that year (it covers future claim payouts), explaining much of this gap. Similarly, in FY2024 net loss was $(19.8) M while operating cash flow was +$4.3 M.
Depreciation and provisions (totaling over $18 M) made the cash flow much better than the accounting loss. This shows earnings were heavily impacted by non-cash items, and in cash terms the business is closer to breaking even. It’s a positive sign that cash flow from operations has been better than net income – generally indicating no aggressive revenue recognition (if anything, some revenue is collected in advance as deposits) and that accounting charges (like provisions) are not draining cash immediately.
One caveat: actual cash outflows for asbestos claims will occur over time (legal settlements and fees) if they don’t close the transaction with Global Risk Capital. These were ~$6–7 M in FY2024 (as implied by the reduction in the asbestos provision net of the $10 M added). So while the provision was non-cash, there is an ongoing cash cost that will persist until the liability is resolved (which the company aims to do via the divestiture in the coming weeks).
Excluding legacy issues, Velan’s net income and cash flow are more aligned; for example, adjusted EBITDA $17.8 M minus capex $6.8 M roughly equals the $11 M adjusted operating cash before working capital, which is in line with a near-breakeven adjusted net result.
Investing and Financing Cash Flows: In FY2024, cash used in investing activities was $14.1 M. This consisted of the $6.8 M capex and about $5.2 M net purchase of short-term investments (the company moved some cash into short-term deposits/instruments) plus intangible asset additions.
In FY2023, investing activities actually provided $1.8 M net because Velan reduced its short-term investments by $8.3 M (drawing cash back), partially offset by $4.4 M in capex.
These swings in short-term investments suggest the company manages excess cash actively – parking surplus cash in short-term instruments when not immediately needed.
Financing activities in FY2024 used $4.66 M net. The major financing cash flows were: repayment of long-term debt $8.76 M, increase in long-term debt $1.29 M (net debt repayment ~$7.5 M) repayment of lease liabilities $1.90 M and dividends ~$0.49 M. These outflows were partly offset by any short-term bank borrowing changes (for example, Velan had a small bank overdraft of $0.26 M in prior year that was cleared in 2024).
In FY2023, financing used $2.62 M net as the company drew $3.67 M of debt but repaid $4.40 M and paid leases/dividends.
Sources of cash: The primary source of cash has been internal operations (albeit minimal) and customer deposits (which effectively fund working capital). Velan has not relied on external equity or large new debt financing in recent years.
Uses of cash: Primarily, cash has gone to fund working capital (in FY2023), capex, and to reduce debt. The company also reinstated its small dividend, indicating confidence in liquidity. No share buybacks were done (cash was conserved for debt reduction and investment).
Cash Flow Outlook: With the planned removal of asbestos liabilities (which will likely involve a one-time cash outlay of ~$143 M funded by the french asset sale proceeds) Velan’s operating cash flows should improve because it will no longer incur legal payments and provisioning for those claims. In the short term, however, the company’s free cash flow will depend on executing the backlog. If sales ramp up in FY2025 as expected, we may see a temporary working capital usage (to build inventory for deliveries, etc.), but ultimately higher sales should generate more operating cash.
So far we have seen higher YoY numbers but we have yet to see the last quarter of their fiscal year that is usually the strongest one:
The company’s capex needs are not expected to spike; likely they will remain around $5–10 M annually, which can be covered by operating cash if margins normalize.
In summary, Velan’s recent cash flows show a company in restructuring – minimal but positive operating cash, reinvestment in assets, and de-leveraging. There are no alarming cash flow red flags like persistent negative OCF or huge capex commitments beyond means. The misalignment between net income and cash flow is understood (driven by non-cash charges), and aside from that, cash generation has been roughly in line with the low-margin nature of the business.
Post-Deals Closure Pro Forma Financials
Velan is undergoing two major transactions – the sale of its French operations and the divestiture of all asbestos liabilities – which will significantly alter its financial profile.
Below is a breakdown of the pro forma impact:
Revenue and Operations Impact: The sale of the French subsidiaries (Velan S.A.S. “Velan France” and Segault SAS) will remove a substantial portion of Velan’s revenue. In the fiscal year FY2023, France contributed roughly 24–25% of total sales (about $90.8 million of $370.4 million).
Post-sale, Velan’s ongoing revenue base will be smaller – focusing on North America and other regions outside France. Based on this proportion, annual revenues will drop by roughly one-quarter (for example, using FY2024 sales $346.8 million, one might estimate pro forma continuing sales on the order of ~$290 million if the French piece is removed, which goes inline with the $250 million of backlog NTM).
This also means a narrowing of Velan’s scope: the company will no longer directly serve the French nuclear valve market (the buyer, Framatome, will take over that business). However, Velan will continue to operate in the nuclear valve sector outside of France, and management emphasizes that it remains well-positioned in clean energy and nuclear markets globally.
We should note that the French subsidiaries were profitable historically, so divesting them removes a medium earnings contributor.
In the latest quarter before the sale, the French segment showed a loss (due to one-time write-downs ahead of sale), but on a normalized basis those operations had positive margins.
The corporate overhead in Montreal can now be focused solely on the remaining operations, potentially yielding some cost savings. Overall, the continuing business will be leaner and more geographically concentrated, with a focus on North America and other export markets, particularly for nuclear and industrial valves.
Pro Forma Debt and Cash (“Virtually Debt Free”)
A core benefit of these transactions is the expected strengthening of Velan’s balance sheet. Velan is selling the French subsidiaries for a total consideration of US$198.4 million (€192.5 million). This includes a cash purchase price of approximately US$175.2 million plus the buyer’s assumption of a $23.2 million intercompany loan owed to Velan.
In parallel, Velan will divest its asbestos liabilities by selling the affected entity to an affiliate of Global Risk Capital. To facilitate this, Velan will capitalize the entity with $143 million in cash (with Global Risk Capital contributing an additional $7 million).
Velan explicitly stated it plans to fund the asbestos transaction using “available cash and a portion of proceeds from the sale of its French subsidiaries”. After these transactions, Velan expects to be “virtually debt free”.
Here’s the math: by Q3 FY2025 (Nov 30, 2024), total cash on hand was around $35 million. Now, adding roughly $175 million cash inflow from the French assets sale and subtracting the $143 million cash outflow to fund the asbestos vehicle yields a net gain of ~$32 million. This suggests Velan could end up with around $67 million in cash on hand. Management provides an estimate of $65 million cash pro forma probably accounting for transaction costs.
Even if we assume some taxes or transaction costs, that cash is more than enough to fully pay off the ~$27 million of debt. In other words, post-transactions Velan should have no financial debt and a healthy cash reserve of around $38 million (USD).
Management’s description “virtually debt free” will indeed be true – the company will eliminate its bank debt and likely maintain a net cash position. No new debt obligations are expected to arise from these deals; in fact, they are deleveraging events. (The only scenario where new debt would be needed is if the French sale doesn’t close on time – the company noted it would seek alternative financing for the asbestos deal if necessary. But assuming both transactions complete, Velan won’t need to incur new debt.)
Net Cash and Financial Stability: With a debt-free balance sheet and additional cash, Velan’s financial stability will greatly improve. The removal of asbestos liabilities is particularly significant – previously, the $73+ million provision on the balance sheet and potentially much larger future exposure hung over the company. After the divestiture, all asbestos-related obligations will be off Velan’s books (the buyer will assume them and indemnify Velan for all legacy asbestos claims).
This not only wipes out a large long-term liability but also eliminates the ongoing legal expenses and cash outflows that Velan would have incurred to settle claims each year. In exchange, Velan is taking a one-time hit to earnings (a non-cash charge of approximately $67 million was recorded to reflect the transaction), but that was an accounting loss to clean up the balance sheet.
Going forward, the company’s risk profile is lower: fewer contingent liabilities, no debt service burden, and a cash cushion to handle working capital or invest in growth. Liquidity will be strong – even prior to these deals, Velan had access to over $120 million of liquidity (cash + undrawn facilities). Post-deal, liquidity will largely come from cash on hand since the need for debt facilities might be reduced (though the company will likely keep credit lines for flexibility).
Being virtually debt-free also means interest expense will drop to near zero, which will help profitability slightly (interest costs were not huge, but any savings counts given Velan’s thin margins).
In summary, these moves significantly de-risk the balance sheet and put Velan in a more solvent, flexible financial position.
Use of Proceeds & Capital Allocation
The proceeds from the French asset sale are essentially being used to purchase peace of mind by funding the asbestos liability exit. In effect, Velan is swapping one asset (a profitable business in France) for the elimination of a major liability overhang. After paying the $143 million into the asbestos vehicle, any net proceeds remaining will bolster Velan’s cash reserves.
The company has not announced any extraordinary dividends or share buybacks with that cash – instead, management has indicated the goal is to reinvest in growth opportunities and strengthen the business.
With a clean balance sheet, Velan will be able to redirect its cash flow (previously constrained by legal provisions and debt) into areas like product development, capacity expansion, or potential strategic acquisitions. The CFO specifically noted that being debt-free will “allow for greater investments in growth opportunities”.
Shareholders might wonder if Velan will truly maximize the value of the French sale proceeds – for instance, will the company sit on a large cash pile earning minimal interest? Given the stated strategy, it’s more likely they will deploy funds into current operations (possibly expanding in the nuclear valve segment outside France, or automation and clean energy related products). All this, of course, if they are not the target of a new take over attempt.
The balance sheet post-transaction will also be strong enough to support future M&A if Velan finds a compelling target (now that the company is smaller, it might consider buying niche technologies or complementary product lines to grow).
Importantly, Velan will no longer be saddled by the cash drain of asbestos lawsuits or the uncertainty of that liability, which in prior years could consume $5–10 million (or more) annually in settlements and legal fees. Every dollar from operations can now be used for productive purposes rather than legacy issues.
Overall, the asset sale and liability divestiture will trade some top-line and earnings in exchange for a safer, more focused company with a solid balance sheet. After these transactions, Velan will emerge as a debt-free company with decent cash on hand – a foundation that can support future profitability improvements.
Will Any New Obligations Arise?
Apart from eliminating debt, one must consider if Velan is incurring any new liabilities as part of these deals. The asbestos transaction is structured to remove liabilities, not add them – Velan essentially pays a third party to take on the liability.
Another consideration: Velan will inform and consult French employee representatives as required by law, but that’s procedural and should not create additional cost beyond what’s already accounted for (employee representatives have the power to delay but not to stop the transaction).
Also, Velan might have to pay taxes on the sale proceeds, but since the transaction is structured via its UK subsidiary selling the French units, there could be tax planning to minimize that (Velan intends to use previously unrecognized tax benefits of $16.7 million to offset the tax liability resulting from the sale of its French subsidiaries).
In any case, even after taxes, the lion’s share of cash goes to the asbestos trust. Finally, if the French sale were delayed or canceled (recall that shareholder approval is pending and the French government review is needed, though selling to a French state-owned buyer like Framatome suggests approval is likely), Velan would have to line up alternate financing for the asbestos payment. This could mean drawing on credit facilities or a bridge loan. However, given the controlling shareholder’s support and the strategic importance, the French sale is expected to close. Thus, no new long-term debt or obligations should materialize; instead, Velan’s contingent obligations will drastically shrink.
In summary, on a pro forma basis Velan will become a smaller but financially stronger company. It trades ~25% of its revenue (~28% of its earnings) for a near-elimination of debt and legacy risks.
The true test will be whether Velan can boost margins and sales in its continuing operations to make up for what was sold; however, the financial foundation will certainly be more solid after these deals.
Peer Pressure: Velan's New Valuation in Context
What would an informed buyer get when buying Velan?
Velan is currently in a phase of turnaround and growth. While it has a long history as a world leader in steel industrial valves, the company has faced challenges and is actively undergoing a strategic transformation. The V20 program (a series of internal efficiency initiatives), completed in fiscal 2022, aimed to streamline operations and improve profitability. Now, the company is focused on executing its backlog and capitalizing on growth opportunities, especially in the nuclear sector.
All this would indicate a transition from a mature business that has faced challenges, to a business that is focused on driving growth and efficiency improvements.
What makes it a little bit challenging to value Velan, is that it does not disclose business segment information. So we will estimate which percentage of the total business is nuclear (which commands higher multiples) vs all the other industrial valves they produce. Moreover, if they finally close the sale of the french assets (which presumably were mostly in the nuclear arena), then total nuclear participation at company level may be reduced (albeit slightly).
Why the Stock Might Be Cheap
First of all, let’s try to understand the narrative surrounding the company to assess why it is trading below peers. It appears that a combination of historical factors, recent strategic shifts, and market perceptions contribute to this valuation gap. Here's a breakdown:
Historical Factors and Market Perceptions
Family Business – Control: family has voting power and controls this like a private company. Many family members are involved in the business – although most are of retirement age now. Viewed as less operationally efficient and a decentralized business with limited operational synergies like global procurement practices.
Off-The Radar: As a family-controlled business, it has less incentive to appeal to public shareholders. No need for outside capital, no analyst coverage, no marketing effort to raise awareness. Trading volume is low, the public float is small. No one really knows about this company.
Inconsistent Historical Track Record: Lack of consistent profitability will not draw investor attention. Results have been noisy and there is nothing in the historical financials numbers that would bring new investors to the story without having context around the recent changes.
Fukushima Impact: The Fukushima Daiichi nuclear disaster significantly impacted the nuclear market, causing a downturn that particularly affected Velan, given its large exposure to the nuclear industry. This event led to a period where the nuclear sector was considered to be in secular decline, making companies with substantial nuclear exposure less attractive to investors.
Past Failed Sale Attempts: The company had previously explored a sale, leading to a Flowserve offer at $13 per share, which was a 135% premium to the share price prior to the launch of the strategic review. While this highlighted interest in the company, the failure of that deal precipitated by the rejection of French authorities may have created uncertainty about the likelihood of a successful take-out, further depressing the share price.
Asbestos Liability: A significant and uncertain asbestos liability weighed on the company for years. This liability was a major overhang that created significant uncertainty, making it difficult for investors to properly assess the company’s value and future prospects. According to management, this alone was the cause for many of the interested potential acquirers dropping from the process back in 2023.
Baseline Assumptions
In building a financial model for Velan’s next few years, we make several baseline assumptions:
Revenue Growth & Backlog Conversion: We project moderate growth in the continuing operation business. An annual revenue growth rate of ~5% (CAGR) over the next few years, reflecting new order bookings keeping pace slightly above shipments. This is grounded in recent trends – Velan’s book-to-bill ratio was 1.29 in the first half of FY2025 (bookings 29% higher than sales), growing the backlog by 11.5% in six months. However, we temper this with historical volatility (FY2023 saw a backlog decline of 7.4% with a book-to-bill of 0.95) to arrive at a sustainable mid-single-digit growth outlook in the base scenario (see Appendix for a historical analysis of backlog conversion). LTM sales of continuing operations were $292.8 million (USD), we are assuming NTM sales of $296 million (USD) and a 5% growth rate afterwards.
Gross Margin: We assume gross margins will normalize around ~32-34%. While Q3 showed 38.6%, that was exceptionally high; as volumes stabilize, some of that extraordinary mix benefit may not repeat. However, ongoing efficiency efforts mean margins should stay above the ~30% level seen in FY2023. We model gradual improvement from low-30s toward mid-30s over a few years, assuming no major spike in input costs.
Operating Expenses: We exclude the one-off asbestos and transaction costs and model SG&A roughly flat to modestly rising with inflation. Velan has kept underlying admin costs in check (and will shed the French units’ expenses as well). We incorporate some savings from the asbestos liability resolution (legal expenses will drop) and possibly leaner corporate overhead after restructuring. R&D and selling costs will rise slightly as business grows, but overall we expect operating expense growth < revenue growth, yielding operating leverage.
EBITDA Margins: We assume a sustained 13.5% EBITDA margin going forward (historically they had 5-10% margins, but in the first 9 months of FY2025 the company’s continuing operations are already showing 11%, with 19% in Q32025). A mid-teens margin is considered achievable for well-run flow-control manufacturers – for context, Flowserve’s EBITDA margin is expected to be close to 15% by 2025.
Asbestos & Other Provisions: We assume Velan will have no further asbestos costs effectively removing what had been an annual cash drain and volatile P&L item. Warranty and other provisions continue as normal business (a few million a year usage).
CapEx & Working Capital: Maintenance capex ≈ depreciation and neutral working capital changes. Thus free cash flow (FCF) will approximate net income, as we are not projecting growth CapEx expenditures or any longer-term working capital drag.
Tax rate: Velan has a complex tax situation (different jurisdictions, and prior losses). Going forward, with profitability returning, we assume a more normalized effective tax rate around 25% once the existing loss carryforwards are utilized. Initially, cash taxes may be low due to those losses.
One-time events: The model would incorporate the sale of the French business as occurring in FY2025. We remove that segment’s revenue and expenses from continuing operations and add the cash proceeds to the balance sheet. We also assume Velan might use the proceeds to fully repay debt and capitalize the asbestos liable subsidiary before transfer to Global Risk Capital.
DCF Valuation
Over the five-year forecast, revenue grows at 5% annually (from $296 million to ~$360 million by Year 5), and EBITDA increases proportionally at a constant 13.5% margin. Free cash flow rises from about $30 million to $36.4 million per year in this period, reflecting the steady growth in after-tax operating earnings.
Each of the yearly free cash flows and the terminal value are discounted back to present value using the 10% discount rate (WACC). We assume end-of-year cash flow timing for discounting. Key results of the DCF calculation include:
Present Value of Year 1–5 FCF: Approximately $124 million in total. This is the sum of the first 5 years’ cash flows discounted to today.
Present Value of Terminal Value: Approximately $288 million. This is the $464M terminal value discounted back 5 years to today (by a factor of $1/(1.10^5)$ ≈ 0.62).
Summing the present values of the forecast-period flows and the terminal value yields an Enterprise Value (EV) of about $412 million USD for Velan.
If we add the pro forma net cash of $38 million to the EV, the implied equity value is roughly $450 million (USD).
Velan has about 21.6 million shares outstanding. Dividing the equity value by the share count gives an intrinsic value of approximately $20 per share (USD), which translates to $28.5 CAD per share as the DCF-based valuation for Velan’s stock. This would be the estimated fair value per share under the stated assumptions and projections.
Comparative Valuation
Peer Benchmarking
Here the main caveat is size and liquidity – smaller companies often trade at a discount. But if Velan successfully transforms post-sale, it could attract more investor attention and close some of that valuation gap.
The table below compares Velan to its peers across three categories—Highly Comparable, Comparable, and Partially Comparable—based on key valuation metrics. Velan’s EV/EBITDA NTM multiple of 5.66x is notably lower than the medians of its peer groups: 9.99x for Highly Comparable, 14.36x for Comparable, and 16.49x for Partially Comparable companies. Similarly, Velan’s EV/Sales NTM of 0.77x and P/E NTM of 10.83x are below the respective medians of its peers, indicating that Velan is trading at a discount relative to its industry counterparts on an EV/EBITDA, EV/Sales, and P/E basis.
It’s worth mentioning, that in its past acquisition attempt, Flowserve expected synergies to reduce Velan’s EV/EBITDA multiple from 11.7x to below 7x. Based on Velan’s current enterprise value of $226 million and estimated EBITDA NTM of $39.96 million, the pre-synergy EV/EBITDA NTM multiple is 5.66x. If the same $20 MM synergies were to be present now, Velan’s EBITDA NTM would increase to $59.96 million, reducing the post-synergy EV/EBITDA NTM multiple to approximately 4x.
Below, we provide a table with relevant transactions that recently closed in the non-nuclear industrial valve segment. Additional examples are available in the Appendix.
From the comparable transaction multiple for non-nuclear industrial valve companies, we assume a 7.5x EV/EBITDA multiple. There are other sources that provide more aggressive industry averages but we will use 7.5x to remain on the conservative side.
These figures represent valuations for companies focused solely on non-nuclear industrial valves. For the nuclear sector, we can refer to Velan's transaction multiple from the sale of its French assets to Framatome. We estimate that the EBITDA margins for the French operations, which primarily involve nuclear activities, were around 9-11%.
Using the $98 million TTM (trailing twelve months) sales figure provided in the Q3 2025 MD&A for Velan France, we estimate an EBITDA between $8.8 million and $10.8 million (USD). This suggests an EV/EBITDA multiple between 18x and 22x for the transaction involving the sale of the French assets to Framatome. We use 18x, again, to remain on the conservative side.
Assuming that the nuclear business continues to represent 25% of Velan's total earnings following the French transaction, we can calculate a weighted average multiple to estimate Velan's overall valuation.
Using the same assumptions provided for the DCF valuation, we estimate NTM sales to be $296 million USD and EBITDA margins of 13.5% which derives in an EBITDA of around $40 million. With a pro-forma cash balance of $38 million after both completed transactions (asbestos and sale of French operations) we arrive at the following scenarios.
Conservative: 10x (aligned with Flowserve's MOGAS acquisition plus 18x multiple on the nuclear business).
Aggressive: 14.8x (Capstone Partners' upper range for niche flow control deals plus 18x multiple on the nuclear business).
Takeout Scenario: Assessing Acquisition Probability
Flowserve’s attempted acquisition of Velan in 2023 highlighted strong strategic interest but ultimately collapsed due to regulatory challenges. In February 2023, Flowserve, a U.S.-based flow control company, agreed to purchase Velan for approximately $245 million in cash (C$329 million), offering Velan shareholders C$13.00 per share—a 119% premium over the prior 30-day average price. Velan’s board and family owners backed the deal, which promised synergies, including an estimated $20 million in cost savings within two years, and integration into Flowserve’s valve division. However, the transaction required approvals across multiple jurisdictions.
In October 2023, the French government’s Foreign Direct Investment review halted the deal, citing national security concerns. Velan’s French subsidiaries, Segault and Velan SAS, supply valves for nuclear plants, submarines, and aircraft carriers—assets deemed strategically vital by France. French authorities found Flowserve’s proposed safeguards inadequate, expressing concerns that U.S. ownership could risk sensitive information or control, such as the U.S. government potentially accessing critical data. Following France’s veto, Flowserve terminated the agreement in October 2023. Notably, no termination fee was required from either side, indicating an amicable, though disappointing, end to the process. This unsuccessful bid underscored Velan’s appeal as a target while revealing the significant regulatory hurdles, particularly for defense-related businesses, in cross-border acquisitions.
Renewed Interest: Still an Attractive Acquisition Target
Several factors still make Velan an attractive acquisition target:
Specialized Product Portfolio: Velan stands out as a leading manufacturer of highly engineered valves, holding strong positions in nuclear, cryogenic, and defense markets. Its niche expertise, such as valves for nuclear reactors and naval applications, combined with a substantial installed base, creates high barriers to entry and valuable aftermarket opportunities. For example, Velan’s valves play a key role in emerging small modular reactor (SMR) technology, positioning the company to benefit from the global nuclear renaissance.
Improved Financial Health: By divesting its asbestos liabilities and potentially selling its French subsidiaries, Velan is poised to achieve a robust, nearly debt-free balance sheet while reducing operational risks. With rising revenues and a growing order backlog, the company presents a cleaner, more appealing profile for potential buyers, free of legacy burdens.
Global Footprint and Aftermarket Potential: Velan operates manufacturing facilities in nine countries and serves a worldwide customer base. Its extensive installed valve base offers significant aftermarket service revenue potential. An acquirer could integrate Velan’s products into their own global sales and service network to accelerate growth.
Shareholder Willingness: Velan’s controlling shareholders, the founding Velan family through Velan Holding Co., demonstrated openness to a sale by agreeing to Flowserve’s C$13-per-share offer in 2023 after a thorough strategic review. This indicates flexibility for the right price. The prior process, which deemed Flowserve’s bid the best and highest at the time, likely attracted other interested parties. With Velan now in a stronger position, those suitors—or new ones—may see an opportunity to re-engage.
Flowserve’s Acquisition Strategy & Interest in Velan
History of Acquisitions and Growth Strategy
Flowserve Corporation has built its growth through a consistent strategy of acquisitions, focusing on companies that broaden its product portfolio and global presence. Established in 1997 through the merger of BW/IP and Durco International, Flowserve went on to acquire numerous firms in the pump, seal, and valve sectors. Key deals include Ingersoll-Dresser Pumps in 2000, valve manufacturers like Innovative Valve Technologies in 2000 and Valbart in 2010, and pump and seal specialists such as SIHI Group in 2015. These moves have positioned Flowserve as one of the world’s leading flow control companies, with a wide-ranging portfolio of flow management products.
In recent years, Flowserve has pursued its “3D strategy”—Diversification, Decarbonization, and Digitization—to guide its acquisition efforts. This approach targets companies that expand its market diversity, support the shift to cleaner energy infrastructure, and advance its technological capabilities. Flowserve favors “bolt-on” acquisitions, integrating firms that offer complementary technologies or niche market positions while meeting strict financial return goals.
For example, when targeting Velan, Flowserve’s management emphasized the fit with its Flow Control division and alignment with the 3D strategy. Velan’s portfolio bolstered diversification through its nuclear and defense offerings and supported decarbonization via its contributions to nuclear energy. In its February 2023 announcement, Flowserve noted that Velan brought premium brands and technical expertise to high-value markets, meeting disciplined financial benchmarks—expected to boost earnings with an EBITDA purchase multiple below 7x, including synergies (11.7x without synergies). This approach reflects Flowserve’s broader M&A philosophy: acquiring undervalued or specialized leaders that deliver both revenue growth and cost efficiencies through integration.
Recent Acquisition Activity and Integration Capacity
Flowserve’s enthusiasm for acquisitions remains evident through its activities in 2023 and 2024. Despite the unsuccessful Velan bid, Flowserve acquired MOGAS Industries in October 2024 for approximately $305 million in cash. Based in Houston, MOGAS specializes in severe-service valves for mining and process industries, complementing Flowserve’s portfolio by enhancing its mission-critical valve offerings and aftermarket services. Funding the acquisition entirely with cash on hand further showcases Flowserve’s solid financial position and liquidity to pursue mid-sized transactions.
Flowserve’s track record of integrating past acquisitions suggests it has the capacity to handle additional deals if they align strategically. The company’s Flow Control Division is designed to absorb valve businesses, with both Velan—had it succeeded—and MOGAS intended to join this unit. Flowserve’s actions following the Velan setback reinforce this capability: the failed deal did not slow its pursuit of MOGAS just months later. While Flowserve faced one-time costs in 2023 from the Velan termination, such as due diligence and advisory fees, the absence of a breakup fee and steady operational profits kept the impact manageable.
Renewed Interest in Velan – Likelihood of Another Bid
With Velan resolving the challenges that derailed the 2023 deal, Flowserve might consider reviving its interest. The original strategic motivations for pursuing Velan remain largely intact:
Complementary Product Fit: Velan’s specialized valves, particularly for nuclear and cryogenic applications, continue to fill a gap in Flowserve’s portfolio. In 2023, Flowserve’s CEO highlighted Velan’s strong presence in nuclear, cryogenic, industrial, and defense markets as a key alignment with the company’s 3D strategy. These advantages—access to nuclear and defense sectors and a robust aftermarket from Velan’s installed base—are even more compelling now, given the global uptick in nuclear investment.
Reduced French Regulatory Risk: The primary hurdle in 2023 was the French government’s rejection of the deal. Velan is now mitigating this by selling its French operations to a local buyer, potentially smoothing the path for a future acquisition. Without the sensitive French subsidiaries in play, a renewed Flowserve-Velan deal would mainly require Canadian and U.S. regulatory approval (we analyze the impact of Canada-US trade war below).
Financial Considerations: Velan’s value has likely risen due to its improved performance and reduced risks. Flowserve would need to evaluate a potentially higher price, factoring in Velan’s stronger earnings. Still, Flowserve has shown readiness to pay premiums for strategic fits, as seen with the over-100% premium offered in 2023. Though it spent $305 million on MOGAS, Flowserve’s cash flow and access to capital markets suggest it could finance a similar-sized deal if the synergies justify it.
Competitive Dynamics: Flowserve might also weigh the risk of a competitor acquiring Velan if it hesitates. Having already conducted extensive due diligence in 2023, Flowserve could have an edge in negotiations. However, it must balance this against the integration of MOGAS and avoid overstretching resources. Any renewed bid would likely be cautious, contingent on confidence that Velan’s remaining operations, post-French sale, deliver the anticipated earnings growth and strategic value.
Canada-US Trade Tensions and Velan’s Attractiveness
The ongoing US-Canada trade war as of March 2025 introduces added complexity to Velan’s operations and potential cross-border acquisitions. With the U.S. imposing steep tariffs on Canadian goods, economic relations are under strain, affecting Velan in several ways:
Operational Costs and Market Access: Tariffs or “Buy American” policies could raise costs for Velan to export valves to the U.S. or participate in American projects. Since a significant portion of Velan’s sales likely depends on the U.S. and allied markets, sustained trade barriers might reduce revenue or profit margins, potentially weakening its financial position. Paradoxically, this could lower Velan’s stock price, making it a more affordable target for an acquirer, though it also increases risks to the company’s overall health.
Cross-Border Investment Scrutiny: Rising trade tensions often fuel protectionist sentiments. Canadian authorities might view a U.S. takeover during a trade war with skepticism, particularly if they worry about losing control over strategic industries.
Strategic Importance Amplified: Velan’s work in defense and nuclear sectors gains heightened sensitivity amid trade disputes. As geopolitical rivalry grows, Canada might prioritize retaining control over manufacturing tied to national security and critical infrastructure, such as naval ships and nuclear plants. In this context, Velan’s strategic value could make foreign acquisition attempts politically contentious.
Canadian Government’s Stance on Foreign Acquisitions
Canada has adopted a tougher approach to foreign takeovers amid economic security concerns, intensified by the trade conflict.
In March 2025, the Industry Minister stated that “economic security is national security,” signaling that all foreign investments could face rigorous review under the Investment Canada Act. Updated guidelines now consider risks like undermining Canada’s economic stability or integrating a Canadian firm into a foreign economy in ways harmful to the country. This shift responds to U.S. tariffs and a volatile trade environment, with officials concerned that trade-impacted firms might become vulnerable to opportunistic foreign buyers at depressed valuations. The minister emphasized protecting key companies from takeovers that could weaken Canada’s economic resilience.
Importantly, the heightened scrutiny under the Investment Canada Act specifically targets opportunistic acquisitions of companies significantly undervalued due to trade-related stresses. This scenario is less likely to apply to Velan. The Velan family clearly demonstrated their interest in selling two years ago, implying that any current sale negotiations would probably maintain or exceed previous valuation expectations rather than reflecting distressed or significantly depressed prices.
However, this doesn’t mean that potential buyers like Flowserve, a U.S. company, can expect an easy path forward. While acquisitions by allies like the U.S. were once treated more favorably, the trade war has shifted the lens closer to a national interest assessment. The Investment Canada Act’s “net benefit to Canada” test and national security review would be strictly enforced, weighing factors such as:
Would the acquisition diminish Canada’s control over a vital industry like energy infrastructure, defense supply chains, or nuclear technology?
Might the foreign buyer cut jobs, shift production, or reduce R&D in Canada, threatening economic security?
In a worsening trade scenario, could Canada be disadvantaged by a key supplier falling under foreign control, such as an American-owned Velan prioritizing U.S. defense needs over Canadian ones?
The 2023 Flowserve-Velan deal’s collapse, driven by France’s intervention, hints at Canada’s parallel concerns—Flowserve had promised to maintain a significant presence in Québec to ease economic worries. With the 2025 guidelines, Canada’s inclination to step in could grow if doubts linger about benefits or security.
Potential for Canadian Government Blocking a Velan Sale
Given these dynamics, Canada could plausibly block or condition a foreign acquisition of Velan, especially under current trade tensions. Velan’s role in nuclear energy and defense contracts intersects with national security and economic vitality, areas the Investment Canada Act can protect by prohibiting deals deemed “injurious” to Canada. The definition of national security now includes economic and supply chain stability, allowing scrutiny of deals beyond traditional defense secrets if they threaten Canada’s industrial base.
These examples show Canada’s readiness to act:
In 2018, Canada blocked a C$1.5 billion takeover of Aecon, a major infrastructure firm, by a Chinese state-owned company over national security concerns tied to its work on nuclear plants and telecom networks. The Innovation Minister stressed that investment is welcome, “but not at the expense of national security.”
In 2008, Canada rejected the sale of MacDonald, Dettwiler and Associates’ satellite division to U.S.-based Alliant Techsystems, citing sovereignty risks from losing control of Radarsat-2 data critical to Arctic security. This rare veto of a U.S. buyer parallels France’s concerns with Velan, highlighting how foreign ownership of strategic technology can clash with national interests.
For Velan, a review would likely probe similar issues. An American buyer might raise specific worries, such as U.S. laws like the Patriot Act enabling government access to Canadian or allied defense data held by Velan. With Velan supplying valves for Canadian nuclear reactors, including future SMRs, Ottawa might favor domestic ownership for energy security.
Still, not all foreign deals are rejected—many proceed with conditions. A Flowserve bid could gain approval with commitments like preserving Canadian jobs, R&D, and security measures for sensitive work. Success would hinge on the acquirer’s relationship with Canada—the U.S. is an ally, aiding the case, but a trade rival, complicating it—and a strong “net benefit” argument, such as technology transfer or market access for Velan’s Canadian operations.
In today’s climate, Canada is poised to leverage the Investment Canada Act to safeguard national and economic security, a resolve sharpened by the trade war. A foreign bid for Velan would face intense scrutiny and could be blocked if deemed too risky, especially given its role in nuclear and defense supply chains. Past rejections like Aecon and MDA signal this willingness. Acquirers must therefore address not just business factors but geopolitical ones, aligning proposals with Canadian priorities—jobs, investment, and security—to secure approval in these challenging times.
Other Potential Buyers and Competitors
Looking ahead, various players in the flow control and industrial valve sector might see Velan’s assets as a strategic fit:
Global Valve and Pump Manufacturers: Companies such as Emerson Electric, with its valve automation segment, IMI plc, a UK-based firm with a control valve division, Crane Co., which once had a nuclear valves business, KSB, a German pump and valve manufacturer, or Curtiss-Wright, a supplier of nuclear naval valves, could view Velan as a complementary addition. These firms have global reach and could capitalize on Velan’s specialized products and established customer relationships.
Private Equity or Investment Firms: With Velan’s enhanced cash flow and niche market position, private equity buyers might see an opportunity to pair it with other industrial technology companies. Recent acquisitions, like that of peer valve maker CIRCOR International by private equity, suggest ongoing interest in this sector. A financial buyer could also mitigate regulatory hurdles by keeping operations based in Canada.
Strategic Partners or Customers: A company heavily invested in nuclear or energy sectors, such as a reactor original equipment manufacturer or defense contractor, might pursue Velan to secure its supply chain. Framatome’s agreement to acquire Velan’s French units demonstrates how a nuclear industry player values Velan’s technology. This rationale could extend to other regions, where a partner in nuclear or energy infrastructure might seek Velan’s expertise.
Case by Case Analysis
In the table below we provide a case by case analysis of each potential acquirer.
Asymmetric Opportunity
In conclusion, the analysis reveals a highly attractive, asymmetric valuation profile for Velan Inc. In the recast model, we see four key scenarios (12-18 months):
• Base Case – $29 CAD/share: This scenario reflects a realistic improvement trajectory driven by operational efficiencies, enhanced margins, and robust backlog conversion. It assumes moderate revenue growth, stable cost management, and the continued de-risking of legacy issues.
• Upside – $42 CAD/share: Under a more aggressive scenario—with accelerated margin expansion, higher order conversion, and stronger market interest post-resolution of asbestos liabilities—the stock could re-rate significantly, unlocking a substantial premium in a competitive take-over scenario.
• Downside – $13 CAD/share: This level represents a conservative floor. Notably, the family previously indicated willingness to sell at around $13 CAD/share, and there is no rational basis for them to accept a lower price now, even if market sentiment temporarily depresses the share price.
• Takeout Scenario – $24/share (short-term): The likelihood of Velan Inc. being acquired is somewhat high following strategic actions by management, including the sale of its French subsidiary and settling asbestos liabilities, clearly prepping the company for a sale. The market conditions and Velan's undervaluation compared to its peers suggest a potential acquirer might offer at least around 8x EBITDA, especially considering cost synergies and the booming nuclear sector. In the past, there was significant interest in acquiring Velan, with 101 potential buyers, 65 NDAs signed, and 11 initial offers. Given the intense past interest in Velan and the premium over its current trading price, the anticipated take-out price could be significantly higher, reflecting its strategic value and market potential.
The compelling risk/reward dynamic is clear: while the potential for significant upside exists if Velan’s turnaround and growth initiatives succeed, the downside is effectively capped at a level supported by historical family sale thresholds and improved fundamentals. This creates a scenario where the reward far outweighs the risk.
Risks Ahead: Navigating a Complex Market Landscape
Below we list some of the current risks that are faced by Velan:
General Tariff (US, China, Canada): Trade Protectionism poses significant tariff risks between Canada and the US, as well as with China, creating multiple layers of uncertainty for cross-border business operations and pricing strategies. The unpredictable nature of these risks makes them particularly challenging to quantify or hedge against effectively. Potential consequences of tariff implementation could manifest in several ways: sales cycles may lengthen as customers delay purchases due to pricing uncertainty, established pricing models may require restructuring, and customers might seek alternative suppliers from unaffected regions to maintain cost competitiveness. The company's relationship with the US Navy as a major customer provides some insulation against tariff risks, as military procurement decisions typically prioritize product quality and reliability over pure cost considerations. This strategic advantage helps maintain demand stability even in a volatile trade environment. Product quality being a primary decision factor in the industry serves as a natural buffer against tariff-induced market disruptions. Customers are less likely to switch to lower-quality alternatives purely based on price considerations, providing some pricing power to absorb tariff impacts.
Execution Risk: Velan needs to deliver its backlog on time and on budget. Past issues with late deliveries and cost overruns show that execution isn’t trivial. Any slip in quality or schedule could hurt its reputation and financial results.
French Asset Sale Completion: While the agreement with Framatome is in place, it still requires certain approvals and the finalization of terms. Until the cash is in the bank and liabilities legally transferred, there remains a risk (however small) that the deal could be delayed or altered.
Reintegration/Post-Sale Strategy: After selling the French units, Velan will be smaller and focused on its remaining operations (primarily North America, and some other international units). How management reintegrates and reallocates resources will be important. As a mitigant units were functioning independently before the transaction so there should not be a big issue to continue operating normally.
Market Cyclicality: The industries Velan serves can be cyclical. A downturn in energy prices or a pause in nuclear projects, for example, could reduce new orders. While the current backlog protects the next year or so, a sustained downturn could impact 2026 and beyond. Macro risks like recession or geopolitical events (which could disrupt supply chains again) should be kept in mind.
Minority Shareholder Considerations: With the Velan family in control, there’s the risk that decisions could sometimes favor their interests (though so far they have aligned well with creating shareholder value). The low float also means stock price could be more easily manipulated or volatile.
Unionized Workforce: Most of Velan's workforce is unionized, which might limit the company's ability to achieve the same level of margin improvements as some of its non-unionized peers (it is not clear which percentage of the total unionized workforce was in the France operations though).
Nuclear Cycle Momentum: A risk to the upside is if the nuclear cycle loses its momentum.
Forex Volatility: most of Velan's post-divestiture revenue comes from non-CAD markets (primarily USD, EUR, and KRW) and most of these contracts are in US dollars, so FX has been a tailwind so far.
Asian Manufacturing Footprint: With 5 plants in South Korea, Taiwan, and China, Velan faces mounting geopolitical risks – particularly China-Taiwan tensions that could disrupt 18% of production capacity.
CEO – James A. Mannebach: In the fiscal year ended February 29, 2024, Mr. Mannebach (who became interim CEO in Oct 2023 and CEO in Feb 2024) earned a total compensation of C$929,361. This comprised:
Base Salary: C$291,746 (pro-rated for the period he served as CEO).
Long-Term Incentive (LTIP) – Share-Based Awards: C$480,000 grant value in Deferred Share Units (DSUs). This was a special one-time DSU award to the CEO during FY2024. By year-end, he held 90,558 DSUs valued at ~C$467,279. (No stock options were granted, and regular Performance Share Units were suspended – see LTIP section below.)
All Other Compensation: C$157,615.
CFO – Rishi Sharma: Mr. Sharma was promoted to CFO on May 23, 2023. His total compensation for FY2024 was C$771,468, broken down as follows:
Base Salary: C$442,184. This reflects his annualized salary (approximately C$440K) pro-rated for the portion of the year he served as CFO.
Short-Term Incentive (STIP): C$35,770. This was the cash bonus earned based on FY2024 performance. It equated to ~25% of his targeted bonus, in line with the company-wide STIP payout of 25% that year.
Long-Term Incentive – Share-Based Awards: C$70,000 in DSUs granted. Like the CEO, the CFO received a special one-time DSU grant in FY2024. He was awarded DSUs (no stock options) with grant-date fair value C$70K. At year-end he held 13,206 DSUs valued at ~C$68,143. There were no performance-vested PSU grants in 2024 (the normal PSU program was on hold).
All Other Compensation: C$223,514. This is relatively high and includes various elements: the company’s RRSP contribution (C$31,560), a car allowance (~C$25,493), and likely the first tranche of a Retention Bonus (described below) paid during FY2023–24. (Velan implemented a retention plan during a potential sale process – Mr. Sharma’s first installment under this plan in FY2023 was $21,875, and the FY2024 figure may include other allowances or benefits ensuring his continued service during the strategic review.)
STIP (Short-Term Incentive Plan) Goals and Metrics
Velan’s STIP is an annual cash bonus tied to financial and operational performance. Each executive has a Target Bonus Opportunity defined as a % of base salary. For FY2024, the STIP metrics were entirely corporate – focusing on profitability and efficiency:
Consolidated Adjusted EBITDA (40% weight).
North America Adjusted EBITDA (40% weight) – to drive performance in the crucial NA segment.
Consolidated Working Capital Reduction (% of Sales) (20% weight) – an operational metric encouraging better management of inventory and receivables.
Each metric had a preset target from the annual budget, and the combined achievement determined the bonus payout. For FY2024, performance fell short of targets – the weighted results yielded only 25% of target STIP payout. In practice, this meant minimal bonuses: e.g. the CFO received ~25% of his target bonus, and the CEO (who started late in the year) effectively received none.
LTIP (Long-Term Incentive Plan) Goals and Structure
Velan’s LTIP has historically been delivered through a mix of Performance Share Units (PSUs) and Deferred Share Units (DSUs), set as a target % of salary (e.g. an executive’s LTIP target might be ~50–75% of salary). However, in recent years the normal LTIP program was altered due to the corporate transformation:
Regular PSU Plan (Suspended): Under normal circumstances, 75% of the LTIP target would be granted as PSUs that vest based on 3-year performance. The PSU performance metrics (when in use) are three-year average Return on Assets and three-year average Gross Margin. PSU payouts range from 0 to 200% of target shares depending on performance over the multi-year period.
Deferred Share Units (DSUs): Typically ~25% of the LTIP target would be granted as DSUs. DSUs are not tied to performance criteria but vest upon an executive’s departure or after a set period (up to 6 years). They are cash-settled based on Velan’s share price at the time of payout. DSUs effectively align executives with shareholders, as their value fluctuates with the stock. In FY2024, Velan provided a special one-time DSU grant to the CEO and CFO (instead of regular LTIP) to reward and retain them through the turnaround. This is reflected in the C$480k and C$70k grants noted above.
Special Transformation Cash Program: In lieu of new PSUs, Velan introduced a temporary cash-based LTIP in FY2022–2024 to support a turnaround plan. This one-time program set multi-year strategic milestones and financial goals (including EPS targets and other profitability measures) that would pay cash rewards only if the company achieved a “proven and sustainable return to improved profitability”. Most goals spanned at least three years, encouraging management to focus on long-term fixes. No payouts have been earned under this program to date, and it was terminated on April 23, 2024.
Retention Bonus Plan: Separately, because Velan was exploring strategic alternatives including a potential sale of the company, the board approved a Retention Bonus Plan for key executives. Under this plan, select executives (including the CFO and former CEO) were promised a fixed cash bonus in three installments: one paid during FY2023, one at the closing of a sale to Flowserve, and one six months post-closing. This was not performance-based, but rather contingent on staying through critical periods. In FY2023, the first tranche was paid (e.g. we see ~$37.5k to the CEO, ~$21.9k to the CFO in 2023 as LTIP payouts). The 2nd and 3rd tranches tied to the proposed Flowserve acquisition were never paid because the transaction ultimately did not materialize.
In summary, Velan’s LTIP for FY2024 consisted mainly of equity-aligned incentives (DSUs) and a now-discontinued special cash plan. When active, the LTIP’s performance metrics (ROA, margin, EPS) are clearly financial in nature, focusing on profitability and efficient use of capital over the long term. The inclusion of DSUs ensures executives have “skin in the game” tied to the share price, even in the absence of PSU grants.
Alignment with Shareholder Interests and Long-Term Value Creation
Overall, Velan’s executive compensation structure is designed to align with shareholder interests and promote long-term value creation:
Performance Metrics Aligned to Value: The company uses financial metrics like EBITDA, EPS, ROA, and margin in its incentive plans, which correlate with profitability and efficient operation. The working capital goal in STIP pushes management to free up cash and improve efficiency – supporting a healthier balance sheet and value creation. These targets are derived from the Board-approved strategic plan and budget, ensuring management is rewarded only when they deliver on shareholder-approved objectives. Notably, in FY2024 the hurdles were challenging – only 25% of the target was met, so executives received a fraction of their potential bonus. This indicates the plan is shareholder-friendly: it does not pay out easily unless meaningful performance gains are achieved.
At-Risk and Equity Components: Both CEO and CFO have a large portion of pay in equity or variable form. The DSU grants tie their wealth to Velan’s share price – if the stock underperforms, those DSUs lose value, mirroring shareholders’ losses. Conversely, if Velan’s stock appreciates, executives benefit alongside shareholders.
Shareholder Alignment During Strategic Events: The introduction of the Retention Bonus Plan during a potential sale process (Flowserve’s attempted acquisition) shows the board’s intent to keep management focused on shareholder interests even amidst uncertainty. The retention bonuses were contingent on seeing the sale through to closing and beyond – effectively incentivizing executives to act in shareholders’ best interest (i.e. complete a value-creating transaction) rather than seeking other jobs. Although these payments were not performance-based in the usual sense, they were strategically aligned with a successful outcome for investors (the sale at a premium). Since the deal did not close, the later tranches were not paid, again underscoring that rewards were tied to shareholder value events, not simply tenure.
Governance and Pay Practices: Velan’s Compensation, Governance & HR Committee regularly reviews the pay structure. The committee considers say-on-pay results and ensures the program supports a “performance culture” and links pay to corporate performance.
In conclusion, Velan’s executive compensation appears shareholder-aligned. The heavy weighting on performance (both annual and long-term), the use of equity-linked units, and the outcome-driven payouts (or lack thereof, in a tough year) all indicate that the incentives encourage executives to improve financial results and stock performance over the long term.
From Deal to Divestiture: Velan's Stock Market Journey
Stock Price Performance
Below, we present a comprehensive analysis of the stock market's performance over the preceding twenty-four month period.
Prior to the takeover announcement in February 2023, Velan was trading near multi-year lows, as investors were discouraged by its losses and operational hiccups. The announcement of Flowserve’s all-cash bid at C$13/share immediately re-rated the stock upwards (it jumped toward the offer price).
After the initial pop, the stock traded slightly below the offer (reflecting some merger arbitrage discount) until mid-2023. Around that time, it became evident that regulatory issues in France might jeopardize the deal, there was some uncertainty, but interestingly the stock did not crash until the final confirmation of the no deal scenario (later in October 5, 2023)– likely because the underlying business results were improving at the same time (the new CEO was appointed first in Oct 2023 and started improving operations).
During the following months after the failed transaction, the market became more confident in Velan as a standalone entity and by fiscal Q2 2025 (Oct 2024) Velan Inc. reported strong results with a 22.8% sales increase, returned to profitability, grew bookings by 63%, increased backlog to $548 million, and secured major nuclear industry partnerships, positioning the company to capitalize on nuclear energy expansion.
By early calendar 2025, the stock had settled in the mid-teens until the announcement on Jan 15th 2025 of the french assets divestiture and the asbestos cancellation.
Investor Sentiment
Sentiment around Velan has shifted from skepticism to cautious optimism. When the company was posting losses and dealing with legacy issues, investors largely avoided the stock (it was under-followed, and trading volumes were low).
The Flowserve bid put Velan on the radar of merger arbitrage funds and special situation investors, increasing interest in the name.
The overwhelming shareholder approval of the deal (over 99% of votes in favor) signaled that investors were ready to monetize their investment at $13 – at that time a very good price. Post-termination, one might expect disappointment, but management’s quick pivot to a de-risking asset sale has been well received.
Now, institutional ownership has likely ticked up slightly, with some value-focused funds or event-driven investors taking positions, although the Velan family still retains control.
Ownership Structure and Liquidity
One overhang on Velan’s stock is the low float and liquidity.
The Velan family, through multiple voting shares, effectively controls the company. Public float (subordinate voting shares) is only on the order of 4–6 million shares. This means daily trading volumes are low, and it can be hard for large investors to take a position or exit one.
The bid/ask spreads might be wider, and any significant buy or sell can move the price disproportionately. This illiquidity can deter some institutions from investing despite the fundamentals.
On the flip side, the low float can contribute to outsized moves (as seen in the price jumping on news). For current investors, liquidity risk means you should expect volatility and possibly difficulty selling large blocks quickly without price impact.
Market Comparables & Sentiment
The industrial valve sector doesn’t have a dedicated index, but sentiment in related sectors (like oilfield services, industrial equipment) has been improving as the global economy recovered from the pandemic.
Additionally, macro factors like higher energy prices and increased infrastructure spending (U.S. and Canada both pushing infrastructure bills) add a tailwind to sentiment for companies like Velan that supply those projects.
However, investors are also aware that Velan is a small player that has stumbled in the past, so sentiment remains a bit cautious pending proof of sustained earnings.
Velan’s challenge is to convince investors that holding the stock is as attractive as selling it was. Early signs are good (with the market pricing above the old deal price), but the real test will be how the stock performs once the one-off transactions are done and it's back to purely fundamentals.
Conclusion: Execution is Key, But the Upside is Clear
Velan represents an attractive but complex investment opportunity. The company is transitioning from a period of significant challenges to one of renewed strength and stability.
Summary of Findings Velan is fundamentally a solid niche industrial player with a long operating history. The recent financial analysis shows a company that weathered a tough FY2023 (supply chain issues, a major asbestos provision hit) but emerged with its main business intact. In fact, stripping out the one-off losses, Velan’s operations were near break-even in that tough year.
Moving into FY2024, performance markedly improved – revenues are growing again and margins expanding, leading to positive adjusted earnings. The balance sheet remains a source of strength: even before any extraordinary transactions, Velan has more cash than debt and a working capital buffer that provides resilience.
The decisive actions by management (agreeing to resolve the asbestos liability via the French unit sale) indicate a willingness to tackle legacy risks head-on, which will leave the company much cleaner financially.
Final Decision Velan represents an attractive but complex investment opportunity.
The rationale is that the upside catalysts and strengths outweigh the remaining risks. By investing now, one is effectively buying a company that is on the cusp of being net-debt-free with a significant cash balance, an improving earnings profile, and a greatly reduced risk profile (post-asbestos). The stock trades at a valuation that does not appear to fully price in the potential for margin expansion plus the optionality of a new takeover attempt.
In relation to this last point, the very fact that a knowledgeable industry player (Flowserve) was ready to pay a certain price for Velan provides a degree of downside protection – it signals that there is strategic value in the business at least at that level, if not more. Since that time, we would argue Velan’s value has improved.
In conclusion, Velan offers a unique value proposition: a recovering industrial business with tangible catalysts (asset sale, risk removal, potential takeover) and a strong balance sheet, trading at a discounted price. Investors should be prepared for some bumps in the road, but if management continues to execute and acts in shareholders’ interests, Velan’s stock has the potential to deliver attractive returns. Keeping an eye on backlog execution, deal closure, and capital allocation decisions will be critical in the coming quarters.
Appendix
1) M&A activity in the flow control industry through Q3 2024
The transaction history tables track deals from December 2015 through September 2024, highlighting target companies, their descriptions, acquirers, transaction values, and valuation multiples (EV/EBITDA). These transactions span a wide range of flow control subsectors including valves, pumps, filtration systems, and specialized fluid handling equipment.
The data shows consistent M&A activity in this sector with notable recent acquisitions by major strategic buyers like Dover, Atlas Copco, IDEX, and Flowserve, as well as significant private equity involvement from firms such as KKR, Bain Capital, and Arcus Infrastructure Partners.
The EV/EBITDA multiples across these transactions range from 5.6x to 20.5x, with a median value of approximately 12.7x.
KPMG LLP. (2024). Flow control industry update Q3 2024. [Industry Report].
2) Recent M&A activity in the nuclear valves industry
3) Historical Backlog Conversion Analysis
Since revenue estimation is an important part of the model, and since this company provide regular updates on backlog numbers, it is worth looking at past reported metrics.
This analysis compares the backlog deliverable in the next twelve months with the actual sales registered in the following four rolling quarters. This provides visibility on how good the company is delivering on that backlog.
The following considerations should be kept in mind:
Impact of French Divestiture: The Q3 2025** data highlights the impact of the French subsidiaries' sale on the backlog. The distinction between "Continuing Operations Only" and "Total, including French Subsidiaries" underscores this effect.
Fiscal Year-End: February is the fiscal year-end for Velan.
Backlog Definition: Backlog represents the value of firm orders that have not yet been shipped.
NTM Backlog: The NTM backlog indicates the portion of the total backlog expected to be delivered within the next twelve months, providing insight into near-term revenue expectations
Currency Impact: Fluctuations in exchange rates, particularly the Euro versus the U.S. dollar, can impact the reported value of the backlog. For instance, the strengthening of the euro spot rate against the U.S. dollar increased the backlog value by $7.9 million as of November 30, 2023.
Recent Trends: As of November 30, 2024, the backlog from continuing operations stood at $298.7 million, which is up 5.3% since the beginning of the fiscal year. This increase is primarily due to bookings exceeding shipments in the first nine months of fiscal 2025.
Deliverability: As of November 30, 2024, 83.4% of the backlog, representing orders of $249.1 million, was deliverable in the next 12 months. This is the highest percentage of NTM backlog in the analysis (probably due to the divestment of the French nuclear assets where orders were usually planned 24 months ahead).
Factors Affecting Sales: Over the quarters, various factors have influenced sales, including:
Increased shipments of large project orders.
Delays in shipments.
COVID-19 pandemic disruptions.
Inefficiencies in plant reconfigurations.
Supply chain delays, increased time to obtain government export documentation, and final commercial negotiations
Seasonality: The Company’s sales are not subject to seasonality (though Q4 is the strongest due to company internal dynamics); quarterly sales vary based on the timing of revenue recognition on large orders.
MRO and Project Orders: Variations in MRO (Maintenance, Repair, and Operations) and project orders can impact bookings and backlog. For instance, a decrease in MRO distributor orders or fluctuations in oil and gas orders can shift backlog values.
Disclaimer
This investment thesis (the "Document") is provided for informational and educational purposes only and is intended for distribution to subscribers of this newsletter. It does not constitute an offer, solicitation, or recommendation to buy, sell, or hold securities of any company or entity mentioned herein, nor should it be construed as investment, financial, legal, tax, or accounting advice. Readers are strongly encouraged to conduct their own independent due diligence and consult with qualified professional advisors before making any investment decisions. The information contained in this Document is based on publicly available data, third-party sources, and internal analyses as of [April 2nd, 2025]. While efforts have been made to ensure the accuracy and completeness of the information presented, no representation or warranty, express or implied, is made as to its accuracy, reliability, or completeness. The information may become outdated or inaccurate due to changes in market conditions, company performance, regulatory developments, or other factors beyond our control. There is no obligation to update or revise this Document to reflect new information, events, or circumstances after the date of publication. Investing in securities involves significant risks, including the potential loss of principal. These risks may include, but are not limited to, market volatility, economic downturns, regulatory changes, operational challenges, currency fluctuations, and company-specific factors. Past performance is not indicative of future results, and there can be no assurance that any investment objectives outlined in this Document will be achieved. Readers should carefully consider their financial situation, investment goals, and risk tolerance before making any investment decisions. This Document may contain forward-looking statements, including projections, estimates, and assumptions about future performance, industry trends, or economic conditions. Such statements are inherently uncertain and subject to numerous risks and uncertainties that could cause actual results to differ materially from those anticipated. No responsibility is assumed for the realization of such forward-looking statements. The content of this Document is not intended for distribution to, or use by, any person or entity in any jurisdiction where such distribution or use would be contrary to applicable law or regulation. In Canada, this Document complies with general securities laws and regulations, including those enforced by the Canadian Securities Administrators (CSA) and applicable provincial securities commissions. However, it has not been reviewed or approved by any regulatory authority. Neither the author(s) nor any affiliates, directors, officers, employees, or agents shall be liable for any direct, indirect, incidental, consequential, or punitive damages arising from the use of, or reliance on, this Document or any errors or omissions contained herein. This disclaimer applies to the fullest extent permitted by law. For further information or clarification, please contact Forterra Investment Management [https://www.forterrainvest.com/].
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