While the solid waste industry was once characterized by a frenzy of acquisition activity by numerous consolidators, today mergers and acquisitions can be described as more strategic and selective. The days of merely “rolling up” acquisitions over a wide geographic base largely are over. However, private equity investors, attracted in part by the sector’s relative stability, continue to play an active role in the industry’s transaction activity.

Investments by private equity firms can offer solid waste companies numerous benefits, such as money to acquire competitors, build new facilities or to invest in new technologies, as well as the chance to obtain better debt financing terms. Before it partners with a private equity firm, however, the owner of a waste company needs to carefully consider a range of issues, including how knowledgeable the equity firm is about the waste industry and whether there is a good fit between his/her company and the private equity firm.

Private Equity Overview

At a simplified level, private equity firms focus on three major activities: (a) raising capital from third-party investors (e.g., pension funds), (b) making active investments in privately held and publicly traded companies, and (c) exiting investments to return the capital and profits to investors. The private equity industry involves several segments, each focusing on different stages of a company’s life: venture capital firms provide early stage equity capital; turnaround private equity firms bet on the revival of struggling entities; growth equity firms assist companies in accelerating their strategic plans; and leveraged buyout funds acquire entire mature companies, generally by paying a significant portion of the purchase with debt. Each segment of private equity can play a role in the solid waste industry, and, in fact, private equity firms are active investors in the sector.

For example, in January 2011, Charterhouse Group purchased Red Bank, N.J.-based J&D Waste Management and renamed it RiverRoad Waste Solutions with the intention of expanding its landfill diversion, recycling and sustainability services. In 2010, Clairvest Group invested growth equity into Hudson Valley Waste Holding, and Summer Street Capital provided growth equity to Action Carting.

As the numerous transactions suggest, the solid waste industry is very attractive to private equity investors. In particular, equity investors gravitate to companies with proven and accomplished management teams, above-average safety records, diverse customer bases, predictable revenues, and a healthy cash flow margins and returns on capital.

Each investment made by a private equity firm must have a “thesis” or rationale that drives a waste firm’s strategy moving forward and to which all shareholders and executives subscribe. An example would be a leading regional solid waste company taking on an equity partner to help fund the acquisitions of nearby competitors (to create additional density and increase waste volume controlled) as well as other value-creating projects such as the development of new recycling or disposal facilities.