2020 has been unpredictable, to put it mildly. As with any major economic shift to the status quo, the impact of the COVID-19 pandemic can be felt across all industries. And, with major countrywide shutdowns keeping people home and offices abandoned since late in the first quarter, the waste industry has not been exempt from this shift. The good news is that it’s not all bad. In fact, according to Raymond James, businesses are still experiencing growth and transactions are still occurring in the waste and environmental services sector.
Raymond James, the full-service middle-market investment bank based in St. Petersburg, Florida, has a dedicated practice focused on the waste and environmental services sector.
“We have unique perspective on the trends that are driving the waste and environmental services business through COVID-19 and are advising on transactions despite the pandemic,” Andy Schwartz, managing director and co-head of the waste and environmental services practice of Raymond James, says.
Before the shakeups that the COVID-19 pandemic brought on, Schwartz says the year started off strong, continuing years’ long momentum.
“From an M&A standpoint, the year was active, and it remains active. We started off with a slew of very notable acquisitions, and that has continued despite COVID-19,” he says.
Making early moves
You can’t discuss M&A activity in 2020 without first mentioning GFL Environmental. GFL started the year by continuing its 13-plus year history of acquisitive growth with two sizable acquisitions, paying approximately $480 million for County Waste and $380 million for American Waste. The company continued making headlines when it priced its initial public offering (IPO) of $2.2 billion in equity and convertible securities, just as the broader market began its COVID-19-related sell-off.
Following up its active first quarter, GFL announced in June that it had entered into a definitive agreement to purchase substantially all of the Department of Justice-mandated divestitures expected to result from the previously announced acquisition of Ponte Vedra, Florida-based Advanced Disposal Services Inc. by Houston-based Waste Management Inc. The acquisition includes vertically integrated solid waste collection, transfer, recycling and disposal assets for an aggregate purchase price of $835 million. The assets to be acquired by GFL include 32 collection operations, 36 transfer stations and 18 landfills supported by 380 collection vehicles across 10 U.S. states. The acquired assets are expected to generate an annualized revenue of approximately $345 million, according to the company.
If that wasn’t enough activity for one year, GFL followed this up with an August announcement that it had agreed to acquire Houston-based WCA and its subsidiaries for an aggregate purchase price of $1.2 billion.
At the time of this writing, the Waste Management acquisition of ADS, which has been over a year in the making, is projected to close in the near-term.
Additionally, Schwartz notes that Republic Services is also in the process of completing its previously announced acquisition of Cleveland, Tennessee-based Santek Waste Services. Other large solid waste and recycling companies such as Waste Connections, Waste Management, Casella Waste Systems and Meridian Waste Services remain acquisitive, as do many specialty waste, industrial services and environmental services providers.
“While many of us remain focused on the sizable, headline-worthy deals happening in the industry, there have been numerous smaller, under-the-radar transactions,” Schwartz says. “Large consolidators are consistently spending hundreds of millions of dollars on M&A annually, both pre-COVID and through the COVID pandemic. A lot of transactions are taking place, and multiples remain at historically elevated levels.”
While activity remains high throughout the waste sector, value remains in the eye of the beholder.
“When it comes to valuing a business, it’s not a one-size-fits-all approach,” Schwartz says. “Valuations are at an all-time high, but there has been some uncertainty in how companies are performing in this environment. Some companies are outperforming and some are more challenged.”
Early on in the pandemic, the industry was faced with new safety challenges, an influx of residential waste and a shortage of waste volume from the commercial sector. The traffic seen in offices shifted as companies adjusted to remote work and children were sent home from schools. Some municipalities were faced with the suspension of certain services, including curbside recycling and yard waste pickup.
“Those with a greater mix towards residential experienced increased volumes,” Schwartz says. “Those more focused on C&D waste streams or commercial waste streams, in general, saw lower volumes at least at the onset of COVID-19.”
"Those more focused on C&D waste streams or commercial waste streams, in general, saw lower volumes at least at the onset of COVID-19,” –Andy Schwartz, managing director and co-head of the waste and environmental services practice of Raymond James
Since then, however, Schwartz says there have been slow improvements.
“Some smaller haulers that don’t have access to their own landfill or aren’t vertically integrated may have seen some margin pressure in April as much more waste was being disposed of through residential volumes,” he says.
Now is the time
Despite the struggles some operations saw during the onset of COVID-19, Schwartz says the most important thing for businesses to understand is that now is still an opportune time to consider selling a business.
Putting aside the short-term dislocation the industry felt, the focus for those looking to make acquisitions remains on how a company will perform under new ownership and in a post-COVID environment, not as much on how COVID-19 impacted operations.
“Many of the operators [in the market today] have reached an age or stage in their career where it makes sense to explore liquidity and exit alternatives,” Schwartz says. “We’ve seen a continued environment where players in the space have a real desire to put their capital to work in M&A.
“Overall, deals are still getting done, acquirers are still active and looking to invest in M&A and valuations remain high,” Schwartz says. “Each company is different, which is why we welcome the opportunity to chat with business owners about their companies and options for funding growth, securing a new capital partner and liquidity to see if now is the right time to consider a deal.”