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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 magazine profile, company President Ben A. Harvey expressed confidence in steps the family business had taken to maximize its recycling capabilities and company competitiveness.

Just two months later, however, Canada-based Waste Connections announced its acquisition of Massachusetts-based 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 offered by Waste Connections to purchase the company.

This deal isn’t an isolated incident. Offers that are simply 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

The acquisition of E.L. Harvey by Waste Connections 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 the year ahead.

In late October, 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.”

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

According to Jim Fish, CEO of Houston-based Waste Management Inc. (WM), that firm spent management effort in 2021 continuing to absorb the assets obtained in its 2020 acquisition of fellow multistate company Advanced Disposal.

WM, which has long been an avid acquirer as the largest waste company in North America, says that although 2021 was quieter in terms of publicly announced acquisitions, the scale of the Advanced Disposal acquisition can be seen in the firm’s second-quarter 2021 figures.

In the second quarter of 2021, 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.

Some of the M&A slack in the MSW market caused by WM taking a pause was picked up by Republic and by other players in the market, including Waste Connections with its purchase of E.L. Harvey & Sons. 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 on the M&A front in 2021. They are being joined in the pursuit of waste-related assets not only by companies with waste operations histories but also by firms with equity portfolio roots.

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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 in the waste industry.

At Waste Today’s 2021 Corporate Growth Conference, which took place in Chicago this November, Effram Kaplan of Cleveland-based investment bank Brown, Gibbons, Lang & Co. (BGL) said the solid waste management sector has become attractive to investors in part because the waste 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. (More on the 2021 Corporate Growth Conference will be presented in the January/February 2022 edition of Waste Today.)

In the considerable coverage of M&A activity to be found on the Waste Today website, the increased presence of buyers (and at times sellers) of waste-related assets described as equity or investment funds has been noticeable this decade.

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 created by Kinderhook in late 2015. Kinderhook Managing Director Rob Michalik called the sale of ACV to Republic Services “an outstanding outcome for Kinderhook, ACV and its employees.”

On its website, 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 are increasingly making moves to align themselves with investment banks or funds. Among them is Illinois-based MSW services provider LRS, which has reached an arrangement to be backed by Australia-based investment bank Macquarie Asset Management (MAM).

LRS now has the ability to 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 fall it 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 waste sectors such as hazardous, liquid and medical waste.

Keeping up appearances

Press 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, when interviewed by this publication in 2020, said the mergers and acquisitions in which his company is involved do fit this requirement, and they 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 the 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 careful strategy. The more than $5 billion stake placed in Covanta by Sweden’s EQT Infrastructure has the capacity to win big or to cause a considerable setback for the deep-pocketed firm.

Smaller niche acquisitions where strategy seems to be the lead factor (rather than proclamations of “revenue run” figures) continued apace in 2020, keeping BGL and other firms busy on the M&A front.

Massachusetts-based Clean Harbors Inc. continued to grow its presence in the hazardous and specialty waste sector with its October purchase of Texas-based HydroChemPSC (HPC). HPC had previously been owned by a Connecticut-based capital firm, marking the return of waste-related assets to a company (in Clean Harbors) with tank-cleaning operation roots.

Los Angeles-based Houlihan Lokey served as a financial advisor in another niche waste acquisition when it helped complete the sale of Environmental Recovery Corp. (ERC) to Houston-based VLS Recovery Services LLC.

VLS, which specializes in railcar cleaning and barge cleaning and repair as part of the waste services it provides, purchased ERC from Illinois-based Rock Island Capital. However, ERC effectively moved from one fund to another, since VLS has been owned by Los Angeles-based Aurora Capital Partners since 2017.

The September acquisition of ERC was described by VLS as its “seventh add-on acquisition” since being owned by Aurora Capital. VLS has grown from six facilities in 2017 to more than 25 facilities in 2021 and, according to the company, it has plans to continue to scale the organization through both greenfield expansion and a “buy-and-build acquisition 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 the senior editor with the Recycling Today Media Group and can be contacted at btaylor@gie.net.