Morton Grove, Illinois-based LRS made news Sept. 9 when it announced it had become the latest in a line of waste companies to receive substantial financial backing from Macquarie Asset Management (MAM) via the Sydney-based firm’s $6.9 billion Macquarie Infrastructure Partners (MIP) V unlisted infrastructure fund.
The move signaled LRS’ intent to expand on its position as the largest privately held waste, recycling and portable services provider in the Midwest, and one of the largest in North America.
LRS CEO Alan Handley says that while he was familiar with MAM Senior Managing Director Paul Mitchener—and the company’s reputation in the industry through its past investments in Waste Industries, WCA, GFL Environmental, WIN Waste Innovations and Solví—the mutual interest between LRS and MAM really began to percolate earlier this year.
“We probably started the conversation with [MAM] in late spring, early summer,” Handley says. “We’d known Paul Mitchener and their record in the industry for a decade or more, and we felt like they shared a similar perspective around waste and recycling with us. We were looking for a large, longer-term investment and more patient capital, and an investor that knew the space. Those were the big reasons for our team, and for me personally, when we picked our next capital provider.”
The financial terms of the deal have been kept confidential, but Handley characterizes it as a significant equity infusion that allowed the company to streamline its capitalization table and monetize some of its earlier investors, such as Ironwood Capital, Closed Loop Fund and Goldman Sachs, that had been with the company for years.
Additionally, Handley touts MAM’s knowledge of the industry and its history of helping companies grow as a pivotal selling point.
He says that Macquarie’s experience in waste yields a whole new Rolodex of industry experts and resources, alleviates LRS management from having to spend time familiarizing the investment firm with the ins and out of the industry, and facilitates the ability for a more seamless transition of data regarding things like back-office systems and safety.
Capitalizing on experience
Lakeshore Recycling Systems, rebranded to LRS in April, was born out of the 2013 vertical integration of Chicagoland companies Recycling Systems Inc. and Lakeshore Waste Services.
The merger brought together Lakeshore Waste Services’ commercial hauling operations with Recycling Systems Inc.’s Midwest-based recycling and transfer stations assets.
Following the merger, LRS worked to strategically acquire transfer assets and commercial operations throughout the Chicagoland market, including recycling operations, C&D sites and transfer stations. The company then began branching out to nearby states.
Since 2013, LRS has closed more than 30 strategic acquisitions in six states, including Illinois, Iowa, Wisconsin, Minnesota, Indiana and Michigan. These deals have helped propel LRS to annual revenues in excess of $350 million. The company boasts an employee base of nearly 1,500 individuals and an asset base of 34 facilities, including landfill assets in the Quad Cities market of Iowa and Illinois.
“We have a very significant, well-vetted business plan for the next five to 10 years. This investment from Macquarie allows us to dramatically accelerate the amount of growth we’ll be able to achieve both organically and through acquisition.” - LRS CEO Alan Handley
With the backing of Macquarie, Handley says the company has only scratched the surface of its growth potential.
“We have a very significant, well-vetted business plan for the next five to 10 years,” he says. “This investment from Macquarie allows us to dramatically accelerate the amount of growth we’ll be able to achieve both organically and through acquisition,” Handley says. “For the last eight years, we’ve relied on incremental minority investments in the company to fuel and support growth. All that has changed now. Macquarie is our first majority equity investor and that shift in investment strategy allows us to access a much larger capital pool that will allow LRS to vastly increase and broaden our growth plans throughout the greater Midwest.”
From Macquarie’s perspective, Mitchener says LRS’ track record of growth and executive leadership were primary incentives for investing in the company.
“Since its inception, LRS has grown rapidly, both through new contract wins and acquisitions, with a growing presence in neighboring markets,” Mitchener says. “Their strong market position and reputation for quality service in the third-largest metro area nationally were incredibly attractive, while their commitment to diversion was equally important. The opportunity to partner with the young, driven management team led by Alan is also key to our approach.”
An emphasis on recycling
Handley says that the Macquarie investment won’t change the company’s growth strategy, but instead, amplify it.
Traditionally, LRS has invested in well-run companies that have both solid safety records and a reputation for strong customer service. While most acquirers in the waste space would likely echo a similar strategy, LRS narrows its focus further to operations in locations that can support the company’s recycling goals.
At the forefront of considerations for companies LRS might acquire is what kind of recycling infrastructure is in place, Handley says.
“We’ve always approached the waste and recycling space with a recycling orientation first, and then tacked on complementary waste services to that recycling base,” Handley says. “Macquarie, the LRS board, and I are very much aligned on that. We think it’s the future. We believe that the old school business plan of taking things straight to a landfill without diversion or recycling is, at best, antiquated and, at worst, incredibly irresponsible. The status quo is certainly not a long-term solution to what the world views as a potential existential issue. That’s our driving thesis, and one of the reasons why we chose Macquarie. They are a world-class global company with a heavy emphasis on ESG, recycling and diversion.”
When entering a new market that is recycling-deficient, Handley says LRS works to utilize its data and expertise to make diversion viable.
He says the company won’t enter a market where there isn’t a demonstrable need for recycling, and it is unlikely to enter a market where a robust recycling infrastructure is already in place. Because of the Midwest’s reliance on landfill, Handley categorizes the region as a “target-rich environment” for recycling.
Handley says that historically, low landfill tip fees have been largely to thank for this lackluster recycling infrastructure. Even though this preference for landfilling might work for other companies, Handley says that it’s antithetical to LRS’ preference for a diversion-first model.
“The traditional status quo waste model is predicated on investing in trucks and people, collecting waste, and then taking that material as efficiently as you can to the closest landfill. This model is largely driven by the profit a company can make at a landfill and has little to do with recycling or diversion,” he says. “Our model is distinctly different. We still invest in the front end, we have exceptional customer service, and we invest in people and trucks like our competitors. However, that is where the similarities end. Unlike the traditional model, LRS places the majority of its capital, both human and infrastructure, between our collection activities and our landfill. We put a lot of our time, intellectual property and effort into making sure that as the material comes through our sites, we pick out as much as we possibly can and seek to find a beneficial reuse for it. For the residuals that we can’t recycle today, and that is constantly evolving, that material goes to the landfill. I think that really is the difference between LRS and pretty much anybody else in our markets.”
Handley is quick to note that it’s not all about commodity value when making the business case for recycling. He says that LRS currently has 27 different items it prioritizes from its pick lines, and while it’s great if some of these materials can be sold as commodities, as long as LRS can divert the material somewhere for less than the cost of sending it to landfill, the company makes money. Much of this diversion is predicated on the company’s continuous dedication to finding end markets.
“The model today is if I can find a beneficial reuse for material that you throw away, and I can do that for less than what it takes to get to the landfill, then it’s a win-win-win. It’s a win for the environment. It’s a win for the person or the company that buys or uses the beneficial reuse material. And it’s a win for LRS because we generate profit in the process,” he says.
The benefits of this strategy make prioritizing recycling an easy sell for LRS, Handley says. Increasingly, the local government leaders, business owners and residents he talks to in the Midwest are advocating for a more sustainable approach to their waste.
“They want recycling, they just don’t know how to do it. So, we plan on really tackling this as a core part of our strategy going forward,” Handley says.
An expanding footprint
Handley says that LRS is currently operational in six states, and that by year’s end, that number could grow to eight or nine.
In the arms race among the larger public waste companies, LRS’ rapid ascension over the last decade has made it a prime acquisition target. But despite inquiries, Handley says LRS has no aspirations of selling in the foreseeable future.
“We started out as a small, very family-oriented, very collegiate group of individuals. We’ve grown, and we’ve been successful, because we have not changed that core composition—being nimble, aggressive, doing things a little bit different from the way everybody else likes to do it,” he says. “There’s no sense amongst my core team, or the stakeholders, to want to change something that’s been working very well for the last decade. If something were to change, then maybe we’d reevaluate, but there’s nothing that I can see that makes me feel compelled to want to change a great thing.”
Although its commitment to recycling makes it a bit of an outlier amongst other waste management companies, it’s this difference that Handley says provides the roadmap for the company’s future growth.
“We’re already one of the largest independents today,” he says. “In five to 10 years, our goal is to be the largest independent in the country and continue to do what we’ve been doing today, which is proving to the world that you can be a good custodian of the Earth, a good environmental steward and also make money doing it. That’s really our rallying cry; our fundamental mission.”