A look into the process of mergers & acquisitions
Waste Connections’ recent acquisition of Progressive Waste Solutions is likely to be the largest industry deal of 2016, according to David Biderman, CEO of the Solid Waste Association of North America (SWANA).
Besides being a huge move for Waste Connections, “In these types of large transactions, there often are opportunities for other companies to acquire divested assets … that don’t quite fit into the acquiring companies’ plans,” he said.
This is how mergers and acquisitions typically play out in the trash business. Companies snatch up assets when the conditions are right. They keep expanding and consolidating, which is a decades-long trend that began when Waste Management and BFI reared growing heads, went public, and used the resulting capital to accelerate ongoing consolidation.
The movement is gaining forceful momentum, especially this year. Already,Waste Management, Santek Waste Services, Advanced Disposal, Waste Connections, and Covanta, among others, have bought up assets. Michael Hoffman of Stifel, financial consultants at the table through Waste Connections’ big deal, projects the roll will continue as companies with a pocket full of money look to create critical mass and increase density for greater operating leverage.
Buyers leverage strategies from tapping into markets where a municipality controls the landfill rather than competitors, to penetrating regions where they can swim upstream as a bigger fish and keep growing.
Tapping into “disposal neutral” markets
When assessing a purchase, Austin-based Inland Waste Solutions looks for “disposal-neutral” markets, owned by the local government.
“If the municipality controls the landfill, I don’t have to worry about competitors raising my tipping fees. Or we make sure we will have a lot of options. Like in Memphis I have three disposal options; Waste Connections, Waste Management, and Republic own the landfills, so I can negotiate tipping fees,” said Inland’s CEO, Bart Begley.
Inland looks for synergistic value, whether through operations synergies or administrative synergies.
“For example, we will purchase a company with both commercial and residential hauling that overlap areas we service so we can save money by merging new routes into existing ones to reduce the number of trucks needed to serve all customers,” said Begley.
In Northwest Arkansas, Inland increased its route density and saved administrative costs because they had dispatching, customer service, and accounting operations in place to manage all services for both the new and old entities combined. That was part of the Deffenbaugh acquisition. It was in an area where Inland was looking to grow — an area where the Department of Justice forced Waste Management to sell off because the solid waste giant got too saturated in that region’s small container business.
“Northwest Arkansas is a tremendous market; they don’t have a lot of players. So a key component of our strategy was to build these routes, which accelerated our growth plan by six or seven years,” said Begley.
Inland’s revenue was $40 million as of the end of 2015. “When you look at what we bought last year, we are heading toward $50 million,” said Begley of the company that’s penetrated seven states.
50 years of constant consolidation
“I describe it as having gone through six or seven major periods of public company expansion and then consolidation in and among those companies,” said Hoffman, explaining how the waste industry lends itself to consolidation because its operations are capital intensive and it’s a way to maximize investments.
“Now there are five [publicly traded companies], which will be four major ones with the Waste Collections and Progressive transaction: Republic, Waste Management, Waste Connections and Casella,” he said, though that figure will change soon if Advanced Disposal goes public, he added.
Hoffman said what is happening today is a meaningful narrowing of valuation differences between buyers and sellers; they are closer together on what they recognize as the value of a deal to each of them. Consequently, he said, “We see a healthy consolidation market in 2016.”
Aiming to be fully integrated
“You collect it; you transfer it; and you drive it to landfill and dump it. So you control waste from the curb to final disposal, capturing all of the profit margin. And that collection is [ideally] diverse with commercial and residential trash and recycling,” said Hoffman.
That’s how Waste Management has been doing collections for decades — inking deals that fit into the company’s existing empire.
“The assets we would look at as a priority would be … the ability to integrate effectively and to optimize and leverage [the deal] around our corporate capabilities to create additional value,” said Toni Beck, Waste Management’s vice president of communications and community relations.
Tightening regulatory requirements is also among drivers of buying and selling decisions, said Biderman. They require large investments in upgraded equipment and landfill design. As an example, he cited what he projects may be around the bend in New York City when haulers are required to upgrade trucks by 2020 to comply with more rigid emission rules.
“Carters will have to buy new trucks or retrofit existing ones. Either way you have to spend a fair amount and some may decide to sell rather than spend to upgrade their fleet. New York has the most collections in the country and many small carters will be impacted; it’s definitely an area to keep an eye on where more transactions could take place,” he said.
Corpus Christi, TX–based K2 Waste Solutions just came on line in 2015. The small independent collector recently acquired a residential hauling company in that city, marking K2’s entry into the residential market. “It gave us a thousand homes in a business that had been outside of our operational footprint. It was a good decision for us,” said K2 President Bill Killian.
“One truck and some containers, and you’re in business.” – Michael Hoffman
The company shoots for a revenue mix of a third in commercial, a third in residential, and a third in industrial.
“Residential and commercial generate a dependable monthly income, though construction contracts are a higher per ticket average and good money makers,” said Killian.
“Unless the major focus is landfilling, it’s hard to break a company,” said Hoffman. We have no choice but to deal with our trash. So usually if a company goes up for sale it’s because the owners want out, he said.
In Hoffman’s view, “If you want to be in the garbage business, if you can borrow money or already have it, you are in. One truck and some containers, and you’re in business.”
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One man’s trash is another man’s treasure—or in the case of Federico Uribe, a source of artistic inspiration. The Colombian-born, Miami-based conceptual artist transforms neglected everyday objects into surprising new forms that look startlingly lifelike. One such work is “Animal Farm,” a collection of barnyard creatures crafted from different recycled bits and ends, from rubber soles to clothespins.
Uribe drew inspiration for “Animal Farm” from his formative years on his family’s cattle ranch in Bogotá. Those childhood experiences in the countryside helped develop an appreciation for nature, a theme found throughout his work. Although Uribe originally studied painting and the fine arts, he decided instead to channel his classical painting background and love for nature into whimsical sculptures woven from multilayered recycled materials.
Animal Farm, which has been displayed at different venues since 2008, includes farmworkers made from pencils; horse and pigs built of scrap wood; donkeys and cows constructed from rubber soles; and even a ram made of rope. Uribe arranges his sculptures into site-specific displays at each gallery. You can find the prolific artist’s most recent work on his Facebook page.
The world has a well-documented problem with trash – and we’re rapidly running out of places to put it. But despite the fact that more and more of us are aware of the issues, our addiction to convenience and disposable living has us churning out garbage faster than ever.
We take a brief look at the problem and at what’s being done to solve it, both in South Africa and in other places around the globe.
How Big Is the Problem?
There’s no doubt that the problem is big – and getting bigger. A recent World Bank report stated that the total amount of municipal solid waste – the type produced in densely populated urban areas – is growing even faster than urbanisation is occurring. According to the report, it is likely to almost double by 2025, going from 1.3 billion tons per year to 2.2 billion.
By 2100, scientists predict that it will have tripled – and may keep rising after that. And this doesn’t just mean overflowing landfills or incinerators churning out toxic chemicals: a study published earlier this year revealed that eight million tons of plastic are dumped in the ocean every year (the equivalent of five plastic bags for every foot of coastline around the globe).
Even nations with a sophisticated trash collection system, such as the United States, are guilty of bombarding the ocean with serious amounts of plastic – with disastrous consequences for delicate marine ecosystems. What’s more, with the plethora of current concerns about climate change, the subject is rarely given any media attention, and researchers must often fight to have their voices heard.
What’s the Solution?
South Africa faces considerable challenges when it comes to tackling the waste management problem – not least the fact that only 60% of its residents enjoy the luxury of curbside waste disposal. Thanks to valuable support from the South African Climate Innovation Centre, however, pioneering firms like Holystic Approach and Eco-Match are making it easier for effective recycling to take place – at both a consumer and an industrial level.
Elsewhere, local groups of business entrepreneurs like the Hout Bay Recycling Co-op – who sort, weigh and sell reusable materials – have carved out useful roles for themselves within the government’s push for a greener economy. As well as helping to make the country greener, the Co-op scheme has enabled many of its members to lift themselves out of poverty and create better lives for their families.
South Africa isn’t the only part of the world taking action. Alinta Energy just blogged about the new electric refuse vehicles (ERVs) improving life in the City of Chicago – not only are they super quiet, they also have impressive green credentials, with each truck offsetting around 21 tons of carbon dioxide each year. And on the waters, the innovative Ocean Cleanup Project is working on the first large-scale method to clear the world’s seas and oceans of harmful plastic.
But while these major schemes and innovations are essential for changing things on a global level, let’s not forget that our personal contributions are highly important too. Why not start today – rethinkrecycling.com has some great ways to reduce your personal waste and become more trash-aware.