Waste & Recycling M&A Update – August 2024

Sustainability, Geographic Expansion, and Expanded Services Drive Waste & Recycling M&A Market

The Waste & Recycling sector continues to consolidate at a solid pace in 2024. Through year-to-date (YTD), the sector has witnessed significant merger and acquisition (M&A) activity driven by several factors, including: (i) sustainability pressure; (ii) geographic expansion and consolidation; and (iii) strategic addition of new service capabilities to enter new markets and drive growth. Increasing regulatory pressures and demand from customers for sustainable service offerings has pushed firms toward recycling M&A and investments in technologies and processes that reduce their environmental footprint. The National Waste & Recycling Association (NWRA) has supported improvements to the Environmental Protection Agency’s (EPA) New Source Performance Standards, Emission Guidelines, and National Emission Standards for Hazardous Air Pollutants regulations that promote clarity in the regulatory scheme and lead to increased certainty for municipal solid waste landfills. Methane emissions at approximately two dozen U.S. landfills have exceeded federal limits and the White House has taken action to strengthen emissions reporting standards. To accelerate the transition to a reduced methane emissions environment, more than $1.3 billion in federal funding and technical assistance has been made available through the Inflation Reduction Act (IRA), according to the EPA¹. This trend has been clearly demonstrated by Waste Connection’s (NYSE:WCN) recent purchase of Pioneer Recycling Services, a recycling player with advanced sorting technologies (May, undisclosed). Strategics have also continued to consolidate and expand their footprint geographically. This trend has been clearly evidenced by Casella’s recent August acquisitions in New Jersey (LMR Disposal) and Pennsylvania (Whitetail Disposal) to grow their presence in the Northeast and Mid-Atlantic regions (undisclosed). Lastly, Waste Management’s (NYSE:WM) recent announcement to acquire special medical waste services provider, Stericycle (Nasdaq:SRCL), for $7.8 billion equivalent to 2.9x EV/Revenue and 13.9x EV/EBITDA, demonstrates the trend for key players to expand their service offerings through M&A.

The outlook for Waste & Recycling M&A is strong for the near-term as strategics continue to bolt-on complementary businesses to drive growth. PE-players are expected to return to the market in a larger way as interest rate pressures recede and solid opportunities for strategic platform and add-on investments present themselves. Sellers with a sustainability story, efficient operations, robust customer list and technology advantages will continue to be very attractive in the marketplace for M&A.

Doug UsiferManaging Director, Capstone Partners

Consolidation Activity Continues to Drive Waste & Recycling M&A

Buyers have demonstrated an affinity towards Waste & Recycling M&A which has fallen 12.3% year-over-year (YOY) to 121 deals announced or completed YTD as waste generation is forecasted to grow significantly over the next two decades encouraging future transaction activity. Municipal solid waste is expected to rise from 2.1 billion tons in 2023 to 3.8 billion tons by 2050, according to a report from the United Nations Environment Program.² Consolidation activity has significantly bolstered M&A in the Waste & Recycling sector, driven by larger firms increasingly acquiring smaller operations and businesses to expand their service offerings and enhance efficiencies. Growing regulatory pressures and consumer demand for advanced waste management technologies and integrated waste management solutions have motivated sector participants to transact. Deal activity among strategics remained robust as private strategics decreased 6.1% in deal volume (46 deals compared to 49 deals in the prior year period) and public strategic deal volume rose 20% equivalent to four additional deals YOY. Notably, GFL Environmental (TSX:GFL), a public Canadian provider of waste collection, disposal, and recycling of construction materials, acquired Florida-based Angelos Recycled Materials for an undisclosed sum in April. The transaction adds seven facilities, including a Class III landfill, material recovery facilities (MRFs), and concrete processing facilities to GFL’s portfolio as it expands throughout the Southeastern U.S. GFL has committed to an aggressive M&A strategy that includes approximately CAD 500 million for six acquisitions YTD with a target spend of approximately CAD 650 million for the year, according to a Q1 2024 earnings call.³

Waste & Recycling M&A among private equity (PE) players has followed broader market trends, witnessing a decline in activity through YTD (26.1%), but M&A activity has still remained important as large PE institutions continue to transact. Of note, PE firm and active consolidator in the Waste & Recycling sector, Kinderhook Industries, announced an investment in Apex Waste Solutions who simultaneously announced its acquisitions of Materials Management Company (MMC) and All American Disposal (May, undisclosed). Apex is a solid waste collection company serving more than 75,000 residential, commercial, and industrial waste customers, according to a press release.⁴ The acquisitions of Colorado Springs-based MMC and All American bolsters Apex’s portfolio of solid waste collection, portable sanitation services, and roll-off services. “Kinderhook is the perfect strategic partner to help us in this next chapter. Kinderhook’s investment will provide us with the capital and support to further accelerate growth and facilitate opportunities to expand into new markets, pursue strategic add-on acquisitions and add additional service capabilities,” said Scott Lukach, CEO of Apex, in the press release. This wave of consolidation has strengthened sector players, positioned them to better address evolving environmental regulations and consumer demands for sustainable practices, and drive scale and growth.

Competition Among Strategics Sends Waste & Recycling M&A Multiples Higher

Waste & Recycling M&A multiples have expanded over the past five years, as acquirers compete for new technologies and synergistic transactions to maximize routes. Sector transaction multiples have averaged 12.5x EV/EBITDA in YTD 2024, a significant jump from the full-year 2023 average of 10.2x EV/EBITDA and the three-year average of 10.6x EV/EBITDA. The rise in average multiples has coincided with a softened private equity dealmaking environment, as the cost of capital required to finance transactions has risen. Contrastingly, public players like Waste Connections (NYSE:WCN) and Clean Harbors (NYSE:CLH) have been relatively sheltered from the rise in cost of capital, having locked in favorable interest rates prior to the pandemic and subsequent rate hikes, according to the companies’ 10-Qs.^5,6 This has allowed them to weather this interest rate environment as valuations and free cash flow generation remain robust. Cheap debt repayments and ample cash have provided opportunities for strategics to increase consolidation and diversify portfolios in the sector. Strategics are expected to continue leveraging free cash flow and multiples are projected to remain elevated with the eventual return of sponsors—signaling a market ripe for further consolidation.

Sector Players Seek Special Waste and Environmental Services Expansion

Buyers have increasingly focused on acquiring companies with advanced technologies in waste sorting, recycling, and waste-to-energy conversion. The integration of cutting-edge technologies has no longer become a luxury but rather a necessity for improving recycling rates and developing innovative solutions to handle complex waste streams. Companies with proprietary technologies, access to higher value special waste, or strong research and development (R&D) capabilities have been particularly attractive targets. Several notable transactions are highlighted below.

• Waste Management Announces Acquisition of Stericycle (June, $7.7 billion, 2.9x EV/Revenue, 13.8x EV/EBITDA) and Acquires Specialized Environmental Technologies (SET) (March 2023, undisclosed) - Waste Management (NYSE:WM) announced the acquisition of Stericycle (Nasdaq:SRCL), a leader in medical waste services, for an enterprise value of $7.7 billion, equivalent to 2.9x EV/Revenue and 13.8x EV/EBITDA (June). WM will acquire all outstanding shares of Stericycle for $62.0 per share in an all-cash transaction, representing a 24% premium to Stericycle’s 60-day volume weighted average price as of May 23, according to a press release.⁷ The transaction is expected to deliver ~$125 million in projected annual synergies by adding a leading platform of differentiated services in attractive Medical Waste and Secure Information Destruction markets to WM’s suite of environmental solutions. The robust growth outlook for Healthcare Services in the U.S. provides a strong business mix to WM’s core Solid Waste business.

“As customers seek to manage a greater volume and variety of materials in a safe, responsible, and sustainable way, Stericycle’s knowledge and expertise in regulated medical waste and secure information destruction are compelling additions to WM’s broad portfolio of environmental solutions. We are proud of all that we’ve accomplished to shape a healthier and safer world and look forward to our future as part of WM,” commented Cindy J. Miller, Stericycle’s President and CEO, in the press release.

WM acquired all assets of SET, an organics recycler, which includes three compost sites, a transfer station, and The Mulch Store, all located in Minnesota (March 2023, undisclosed). The transaction further demonstrates WM’s strategy to expand its Organics collection to capitalize on growing customer demand to meet sustainability goals.

• Waste Connections Acquires Pioneer Recycling Services (May, Undisclosed) – In May, leading waste services provider, Waste Connections (NYSE:WCN) acquired Pioneer Recycling Services from Delos Capital and the Silverfern Group for an undisclosed sum. Pioneer is a provider of high technology, reliable environmental services and sorting solutions for comingled residential and commercial recycling across the Pacific Northwest. Capstone Partners advised Pioneer on its sale to Delos and Silverfern in January 2022 in a successful partnership. “Over the course of our investment, we executed our value creation strategy by investing in state-of-the-art equipment and creating best-in-class material recovery facilities,” said Jordan Mondshine, Principal at Delos, in a press release.⁸ Through the acquisition, Waste Connections has diversified its offerings and added significant recycling capability by adding Pioneer, which is uniquely positioned with advanced sorting technology world-class MRFs.
• EnviroServe Acquires CG Environmental (May, Undisclosed) – One Rock Capital Partners backed-EnviroServe acquired specialty environmental remediation, emergency response, and waste management services provider CG Environmental in May. The terms of the deal were not disclosed. The transaction adds state-of-the-art, proprietary equipment, including CG Environmental’s Annihilator solutions—which enables customers to clean up spills on pavements more efficiently than traditional solutions—to EnviroServe’s suite of environmental and waste management services. This is EnviroServe’s first acquisition since it was acquired by One Rock Capital Partners (June 2022, undisclosed) as they look to overcome environmental challenges, mitigate risk, and drive sustainability for customers.

Waste & Recycling strategic M&A is expected to continue its rise as consolidation, geographic expansion, diversification of services and sustainability power the deal environment. Public strategics with favorable debt terms and emerging companies demonstrating new technologies have provided the sector with extensive consolidation opportunities, leading to a promising M&A market moving through year-end and into 2025.

To discuss the increasingly diversified transaction environment, provide an update on your business, or learn about Capstone's wide range of advisory services and Waste & Recycling M&A market knowledge, please contact us.

Neve Adler, Analyst, was the lead Market Intelligence contributor to this article.

Endnotes

1. Environmental Protection Agency, “Biden-Harris Administration Announces Final Rule to Cut Methane Emissions, Strengthen and Update Greenhouse Gas Emissions Reporting for the Oil and Gas Sector,” https://www.epa.gov/newsreleases/biden-harris-administration-announces-final-rule-cut-methane-emissions-strengthen-and, accessed July 2, 2024.

2. UN Environment Program, “Global Waste Management Outlook 2024,” https://www.unep.org/ietc/resources/report/global-waste-management-outlook-2024, accessed July 11, 2024.

3. GFL Environmental, “GFL Environmental 2024 Q1 Earnings Call,” https://events.q4inc.com/attendee/847833622, accessed July 2, 2024.

4. PR Newswire, “Ain't No Mountain High Enough - Kinderhook Partners with Apex Waste Solutions and Acquires Materials Management Company and All American Disposal,” https://www.prnewswire.com/news-releases/aint-no-mountain-high-enough--kinderhook-partners-with-apex-waste-solutions-and-acquires-materials-management-company-and-all-american-disposal-302150165.html, accessed July 2, 2024.

5. Waste Connection, “United States Securities and Exchange Commission Form 10-Q,” https://app.quotemedia.com/data/downloadFiling?webmasterId=101533&ref=318255048&type=PDF&cdn=036ebc926b6fa8337bc63ecd9dceb9da&formType=10-Q&dateFiled=2024-04-25&cik=0001318220&symbol=0001318220&companyName=Waste+Connections, accessed July 11, 2024.

6. Clean Harbors, “United States Securities and Exchange Commission Form 10-Q,” https://ir.cleanharbors.com/static-files/a5d22ca4-050e-4e8c-8e80-c5dc0a684fa7, accessed July 11, 2024.

7. Waste Management, “WM to Acquire Stericycle, a Leader in Medical Waste Services, for $7.2 Billion,” https://investors.wm.com/news-releases/news-release-details/wm-acquire-stericycle-leader-medical-waste-services-72-billion, accessed July 2, 2024.

8. Business Wire, “Delos Capital and the Silverfern Group Complete the Sale of Pioneer Recycling Services, LLC to Waste Connections,” https://www.businesswire.com/news/home/20240502054481/en/Delos-Capital-and-the-Silverfern-Group-Complete-the-Sale-of-Pioneer-Recycling-Services-LLC-to-Waste-Connections, accessed July 2, 2024.