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February 23, 2018 at 09:26 AM
As long as there are people and communities, there will be garbage, and a need to efficiently collect it and safely dispose of it. That is what can make waste management companies attractive investments for private equity investors.
The U.S. waste management industry includes approximately 24,000 companies — many of them single-location establishments and divisions of multi-location firms — with about $90 billion in combined annual revenue, according to Dun & Bradstreet’s First Research. These privately owned companies have often been operating for decades in local markets, earning the trust of families and neighborhoods for generations. They can be considered recession-resilient companies with balance sheets and brand-name recognition that can take startups decades to build.
As mature, income-producing organizations with proven management teams and loyal client bases, small waste management companies typically need a fraction of the capital required of startups to work towards taking their business to the next level. For example, waste management companies that haul solid waste for residents of urban and suburban neighborhoods may only need a capital injection to purchase more advanced vehicles, such as front-end loading trucks, to streamline their operations and reduce costs. They may also simply need money to enhance the equipment at their waste management facilities, or add equipment to process or recycle additional types of waste, such as cardboard and paper.
Since the companies are already well-established in their respective markets and have a history of producing income in all market conditions, these small capital injections can increase cash flow and potentially deliver a return on investment for private equity investors much faster than startups, or even growth-stage companies in other industries.
In addition, some waste management companies that optimize their operations and income with help from private equity investors may grow to the point where they can acquire or integrate other companies. These acquisitions could provide for route consolidations, and savings on fleet costs and workers’ compensation insurance, creating efficiencies that may ultimately increase the long-term return on investment for investors.
Jeffry Schneider