Hot garbage

E.L. Harvey & Sons, which has been offering waste and recycling services for more than 100 years, had long enjoyed an admirable reputation as one of New England’s leading independent companies in those sectors. In a July 2021 Recycling Today profile, company President Ben A. Harvey expressed confidence in steps the family business had taken to maximize its recycling capabilities and company competitiveness.

But two months later, Canada-based Waste Connections announced its acquisition of E.L. Harvey & Sons for an undisclosed amount. Although financial terms were not published, rumors in the waste and recycling sector were that members of the Harvey family were surprised by the multiple on annual earnings Waste Connections offered.

This deal isn’t an isolated incident. Offers that simply are too good to be refused seem to be increasingly common in the waste and recycling sector today. Large national waste companies have always been on the hunt for regional firms to purchase, but more and more they also are being joined in that pursuit by equity funds and other money managers seeking opportunities—especially those perceived to have sustainability tie-ins.

The coast-to-coast club

Waste Connections’ acquisition of Massachusetts- based E.L. Harvey demonstrates a common merger and acquisition (M&A) pattern in the municipal solid waste and recycling space—a larger national firm gobbling up a smaller local or regional player.

The early 2020s have seen a steady drumbeat of such buyouts, and at least one of the national waste firms, Phoenix-based Republic Services Inc., says it has spent consistently in 2021 on acquisitions and intends to remain an active buyer in 2022.

In late October 2021, during a quarterly earnings call with analysts, Republic President and CEO Jon Vander Ark said Republic’s “year-to-date investments in acquisitions are at $922 million. This is the highest level of acquisition investment in over a decade, [and] we now expect to invest over $1 billion in acquisitions through the full year.”

In comments accompanying Republic’s third-quarter earnings report, Vander Ark says, “Our acquisition pipeline remains robust, with broad-based opportunities in the recycling and solid waste business and in our environmental solutions business.”

Republic began 2022 by announcing it would purchase US Ecology Inc. for a total value of roughly $2.2 billion.

Jim Fish, CEO of Houston-based Waste Management Inc. (WM), says in 2021 WM continued to absorb the assets obtained in its 2020 acquisition of fellow multistate company Advanced Disposal.

WM, which along with Republic comprise the two biggest municipal solid waste (MSW) firms in North America, was quieter in 2021 in terms of publicly announced acquisitions. But the scale of the Advanced Disposal purchase can be seen in its second-quarter 2021 figures.

During that quarter, WM’s revenue increased $425 million in its collection and disposal business, excluding the impact of acquisitions and divestitures compared with the year before. The company also reported a $305 million increase in revenue tied to assets not in its portfolio one year earlier, stating this was primarily from the acquisition of the former Advanced Disposal business.

Republic and other players in the market, including Waste Connections with its purchase of E.L. Harvey & Sons, picked up some of the M&A slack in the MSW market caused by WM taking a pause. Waste Connections also acquired ACT Disposal of New Braunfels, Texas, and the Texas assets of Tennessee-based Santek Waste Services LLC in 2021.

Canada-based GFL Environmental, Illinois-based LRS (formerly Lakeshore Recycling Systems) and Florida-based Waste Pro were other MSW firms active in M&A in 2021. They were joined by firms with equity portfolio roots.

Deeper pockets yet

While national publicly traded waste firms can assemble considerable war chests, theirs are no longer the only checkbooks at the table when it comes to making prospective acquisitions.

At Waste Today’s 2021 Corporate Growth Conference, a Recycling Today Media Group Event that took place in Chicago last November, Effram Kaplan of Cleveland-based investment bank Brown, Gibbons, Lang & Co. (BGL) said the solid waste management sector is attractive to investors in part because the market is growing faster than it was five years ago.

Kaplan also said the sizable flow of capital into private markets has played a role, boosting valuations of companies that own landfills, in particular.

In the considerable coverage of M&A activity in Waste Today, Recycling Today’s sister publication, the increased presence of buyers (and at times sellers) of waste-related assets described as equity or investment funds has been noticeable.

In 2021, New York-based Kinderhook Industries not only acquired such assets but also sold ACV Enviro Corp., a New Jersey-based hazardous waste management firm Kinderhook created in late 2015. Kinderhook Managing Director Rob Michalik called the sale of ACV to Republic “an outstanding outcome for Kinderhook, ACV and its employees.”

Kinderhook describes itself as a private investment firm that manages more than $4 billion of “committed capital.” The firm says it has made more than 275 investments and follow-on acquisitions since its inception.

A Sweden-based company called EQT Infrastructure that says it seeks to acquire “infrastructure businesses with potential for operational value creation” spent more than $5 billion in 2021 to buy Covanta Holding Corp., the largest operator of waste-to-energy (WTE) plants in North America.

In a meeting of these two worlds, operating waste firms increasingly are making moves to align themselves with investment banks or funds. Among them is Illinois-based MSW services provider LRS, which has reached an arrangement with Australia-based investment bank Macquarie Asset Management (MAM) for financial backing.

LRS now can tap into the $6.9 billion Macquarie Infrastructure Partners (MIP) V unlisted infrastructure fund, according to LRS CEO Alan Handley. Handley told Waste Today this past fall that LRS identified MAM and its Senior Managing Director Paul Mitchener when it was “looking for a large, longer-term investment and more patient capital and an investor that knew the space.”

The competition to build waste-related portfolios stretches well beyond MSW hauling and landfill assets. It also includes sizable amounts of money being spent in the recycling space and into niche sectors such as hazardous, liquid and medical waste.

Keeping up appearances

News releases announcing company buyouts commonly use the phrase “strategic acquisition” when referring to the transaction. The passage of a few years’ time eventually reveals whether the strategy was a sound one.

BGL’s Kaplan told Waste Today in 2020 that the mergers and acquisitions his company is involved with do fit this requirement and often pertain to activity in niche waste subsectors with service-based revenue models.

“Management teams must remain hyper-focused on developing and adhering to a strategic plan,” Kaplan said at that time. “Vision and execution are critical when assessing value.”

It remains to be seen how multibillion-dollar equity funds and global banks, should they get more directly involved in the waste and recycling sectors, follow this strategy.

In the wider financial arena, the past several years have been portrayed as a story of capital seeking worthy investments. It is a scenario likely to keep those on the front lines of the waste industry in a state of frequent interaction with those in the banking and finance arenas.

The author is senior editor with the Recycling Today Media Group and can be contacted at btaylor@gie.net. This article first appeared in the November/December 2021 issue of Waste Today, Recycling Today’s sister publication.