Waste and Environmental Services Continued Strong 2020 M&A Activity

Observers have seen a significant economic shift from the status quo across all industries. Of course, this is due to the impact of the COVID-19 pandemic. One of those industries many have not considered is the waste industry.

The drastic countrywide shutdowns have kept employees at home. As a result, offices have been silent, and work in these locations has all but ceased. That means that the waste industry has experienced a major drop in revenues. However, there is some brighter news: according to multinational independent investment bank and financial services company Raymond James. Businesses are still seeing growth, and transactions are still happening in the waste and environmental services sector.

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Prior to COVID-19, 2020 began strong, continuing several years if momentum and activity. An executive at Raymond James says, “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.”

One of the big moves in the sector as far as M&A activity in 2020 was GFL Environmental. The Toronto-based company began 2020 by continuing its 13-plus year history of acquisitive growth with two notable acquisitions. GFL paid roughly $480 million for County Waste of Virginia in January. County Waste, a private solid waste collection company, is located in Virginia ane Pennsylvania. It provides residential, commercial, industrial, and construction and demolition waste collection, disposal and recycling services.

GFL Environmental also closed its $380M acquisition of Michigan-based American Waste on February 1st. American Waste, a vertically-integrated solid and liquid waste company, cost $360 million in cash and $20 million in non-voting GFL shares. American Waste offers a range of services throughout Northern Michigan and Pennsylvania, including collection, disposal, and recycling.

GFL Environmental continued to make news in March when it priced its initial public offering (IPO) of $2.2 billion in equity and convertible securities. The IPO took place just as the broader market began its COVID-19-related sell-off. The company announced that it had raised about $1.4 billion in its IPO. That priced it below the target range in a conservative step to ride out market volatility in the wake of the coronavirus outbreak.

After its active first quarter, GFL announced in June that it had entered into a definitive agreement to purchase substantially certain Justice Department-mandated divestitures. GFL anticipated that these would come from the previously announced acquisition of Florida-based Advanced Disposal Services Inc. by Houston-based Waste Management, Inc. Advanced Disposal, based in Ponte Vedra, Florida, is the fourth largest such company in the U.S.

The acquisition includes vertically integrated solid waste collection, transfer, recycling and disposal assets. The aggregate purchase price was $835 million. GFL acquired 32 collection operations, 36 transfer stations, and 18 landfills supported by 380 collection vehicles across 10 states. The company expects the acquired assets to generate an annualized revenue of approximately $345 million.

In addition, GFL said in August that it had agreed to acquire Houston-based WCA and its subsidiaries for an aggregate purchase price of $1.2 billion. GFL said that the acquisition gives it an attractive opportunity to broaden its geographical reach into the Midwest and Southeast United States. The acquisition brought a network of vertically integrated assets with a strong regional market presence in Texas, Florida, and Missouri.

In March, Republic Services confirmed the acquisition of Santek Waste Services. Tennessee-based Santek Waste Services had an annual revenue of $125 million in 2018. The vertically-integrated company has operations across nine states — Alabama, Arkansas, Georgia, Kentucky, Mississippi, North Carolina, Tennessee, Texas, and Virginia. Santek operates more than a dozen publicly-owned landfills across those states. Many of them have years of disposal capacity remaining. The company also operates 11 transfer stations and multiple collection operations, across six states.

Analysts say that Santek’s assets are a great match for Republic, with its large presence in the region. There are a few markets that are looked upon as particularly advantageous, according to sources and research. Republic has a sizable collection operation in Birmingham, Alabama, However, it recently announced its Pineview Landfill northwest of the city would be closing in 2025 as part of a consent agreement. Santek is contracted to operate two landfills for Jefferson County, north of the city, that have plenty of capacity remaining.

There are several other large solid waste and recycling companies that continue to be acquisitive, along with numerous specialty waste, industrial services and environmental services providers. This includes companies such as Waste Connections, Waste Management, Casella Waste Systems, and Meridian Waste Services

Although activity is still up throughout the waste sector, value remains in the eye of the beholder. When valuing a business, one size doesn’t fit all, -fits-all approach,” says an executive at Raymond James 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,” the executive remarked.

At the start of the pandemic, new safety challenges hit the industry. The industry also encountered an influx of residential waste and a shortage of volume from the commercial sector. The traffic seen in offices shifted as companies reconfigured to address the gains in remote work and children being schooled online. In addition, some municipalities suspended certain services, including curbside recycling, and yard waste pickup.

Analysts say that even though there were operational issues during the onset of COVID-19, now is still an advantageous time to consider selling a business.

Ryan Carpenter serves as Attorney and Managing Director of Carpenter Wellington. Ryan advises clients across a broad set of corporate and commercial matters.

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