Raymond James releases environmental and waste industry update

Raymond James, a St. Petersburg, Florida-based investment banking company, has released a new report detailing its perspectives on the current state of the environmental and waste services industry.

As shared in the report, the company’s investment banking team says the sector continues to perform well despite the effects of COVID-19 as investors flock to resilient industries with strong growth prospects.

Although the effects of the pandemic have driven employees out of the office and into their homes, waste haulers and landfill owners have seen decreasing commercial volumes and vastly greater year-over-year residential volumes. As residential hauling services are generally not priced by the volume of trash collected, some businesses have seen margin pressure over the second quarter, which has eased as states have re-opened and employees have started going back to the office.

The public integrated waste businesses continue to push their disposal pricing up, helping to offset any declines in overall volume. Additionally, some businesses are deciding to reduce their 2020 capital expenditure budgets in order to shore up free cash flow and keep balance sheets healthy. 

The highest-profile merger and acquisition (M&A) activity of the quarter was relating to Houston-based Waste Management’s (WM) acquisition of Advanced Disposal Services (ADS), Ponte Vedra, Florida. WM re-cut the terms of the acquisition by reducing the equity value paid to ADS’ shareholders by approximately 9 percent. The DOJ is requiring the divestiture of around $340 million in revenue, which Canada-based GFL Environmental is picking up for an EBITDA multiple of approximately 9.0 times, or 8.0 times after synergies. 

In the specialty waste sector, Harsco Corporation, Camp Hill, Pennsylvania, closed on its approximately $460 million acquisition of Detroit-based Stericycle’s Environmental Services' business in April, which it will merge into its Clean Earth business segment, acquired from Compass Diversified Holdings in May 2019 for over $600 million. Harsco sees this division as a national leader in hazardous waste solutions and is likely to look to continue to grow through M&A as the parent company transitions to a less cyclical, more asset-light business model.

According to the report, private equity interest in both the solid waste and specialty waste segments continues to be robust, with many groups looking to back seasoned executives to roll-up assets in regional markets and with specialized service capabilities. Private equity is attracted to the waste space due to its proven resilience through economic cycles, the opportunity to consolidate a fragmented market and the attractive financial profile of many sub-segments.

The environmental services market is also in favor currently. These businesses are slightly more effected by COVID-19, but have strong long-term tailwinds driven by regulatory compliance; adoption of environmental, social and governance (ESG) standards; and the will to limit future environmental litigation risk. Investor appetite towards the sector can be seen in the recent IPO performance of Irvine, California-based Montrose Environmental Group, a growth-oriented environmental consulting business, which has surged over 40 percent in its public debut. Raymond James anticipates continued interest in the sector, with soil and water treatment, consulting and air quality testing businesses likely to remain interesting for both private equity and strategic acquirers.

For a full copy of the report, interested parties are encouraged to reach out directly to the Raymond James Waste Services team at WasteServicesIB@RaymondJames.com.