Waste Industries Comes Of Age

WORLD WASTES STAFF

For 27 years, Raleigh, N.C.-based Waste Industries Inc., has been a fixture in the South, providing services in North and South Carolina and to select areas of Virginia and Tennessee.

Since 1990, Waste Industries has acquired 19 solid waste collection operations and is ready to build "the premier solid waste services company in the Southeast."

Currently, this regional company has 20 branch collection operations, 11 transfer stations and four recycling processing facilities serving approximately 150,000 municipal, residential, commercial and industrial locations.

Waste Industries was among the first in the state to develop the county convenience site concept, designed to provide rural areas with waste services while consolidating the waste. The company now operates approximately 100 convenience sites in North Carolina.

In their first interview after announcing its initial public offering on May 14, 1997, World Wastes Editor/Publisher Bill Wolpin caught up with Waste Industries' principals Lonnie Poole (CEO), Jim Perry (president) and Robert Hall (CFO) to discuss their company's growth strategies.

WW: How will Waste Industries distinguish itself in this highly competitive marketplace?

Jim Perry: We believe our value lies in the loyalty of our customer base. We must deliver reliable, cost-effective, environmentally-sound solid-waste solutions with a well-trained, highly motivated workforce.

Unlike the "department store" concept, we try to tailor our services to do what the customer wants and needs at reasonable prices.

We will seek to acquire companies with similar values as we expand our franchise both in existing and new marketplaces.

WW: How many and what types of solid waste companies are you targeting for purchase?

Robert Hall: Currently, the company is in various stages of examining more than 50 collection companies and/or landfills representing $70 million in annual revenue. Approximately 25 percent are tuck-ins, 25 percent are in contiguous markets and the balance are in new markets.

WW: Do you anticipate using Waste Industries stock as payment toward new acquisitions?

RH: The seller obviously impacts the currency in the transaction based upon his tax considerations, financial objectives and continued involvement in the business. The lack of marketable currency in the past gives us no history to draw upon.

Our investment bankers indicate that on average, 25 percent to 35 percent of stock may prove realistic in the waste industry.

WW: Profile a waste company you would be interested in buying.

JP: First, we evaluate the company's location, workforce and customer base. The ideal company would be in an area with many disposal alternatives and, hopefully, would have management that wishes to remain and become a part of our company.

RH: We look for a market area with strong economic and population growth. Also, we look for companies with growth opportunities - one of which is privatization.

WW: How will your lack of landfill ownership affect your overall success?

JP: Very little, as long as there are multiple disposal alternatives, waste volumes can be used to secure favorable pricing, allowing us to remain competitive. For example, in our current market area, we use 60 public and five private disposal sites. We [might] acquire or develop a disposal site as opportunities present themselves.

We look for the "three Cs" in making a decision about disposal. Capacity: Is there an excess? Compliance: Is it Subtitle D approved? Competitive: Can you buy that service on a wholesale basis?

We take advantage of our volume by operating a network of transfer stations so we can lever the volume to achieve competitive disposal rates.

WW: How do you plan to increase operation efficiency?

RH: You always can increase route density by adding more customers, and technology is improving rapidly. Trucks are faster and lighter, and drivers are better trained.

JP: As we began to establish branch operations, we recognized that solid waste management is a local issue best managed with a decentralized structure. In the mid '80s, we formalized that structure and empowered our local managers with the authority to make decisions regarding the resources they employ and the prices charged for local services.

Couple that with a sophisticated MIS system, and you have a tool for local management to satisfy the customer needs, optimize the collection routes, manage disposal costs and improve productivity.

WW: What have you learned from the operations you've acquired?

JP: You need a motivated workforce to execute any business plan. Once we decide to acquire a company, the process should move as quickly as possible. We talk to employees as soon as practical to let them know what's happening and what's to be expected and we put salespeople on the street to start making immediate customer contact.

We assign various responsibilities to team members with a timeline to accomplish a specific task. We also try to plug in our MIS as soon as practical.

WW: How will recyclables market volatility affect growth?

JP: We were first introduced to market volatility in the early '70s, as Lonnie and I started a corrugated recovery system. We quickly discovered that commodity markets can have wide swings and in order to reduce risk, prices for collection services should be independent of commodity values.

Based on the first quarter of 1997, less than 3 percent of our revenues actually come from recycling. Therefore, you could determine that the market volatility would have very little impact on our growth.

WW: I'm a reader, and I'm interested in selling my company. Why should I choose you?

JP: That decision is a very personal one. You have to consider the reputation of the acquiring company and the direction that it would bring. Our course is clear; it's based on people, principles, practices and an expected performance level. The management at our company is well-known and respected and I believe potential sellers see this as an important factor.

WW: What are the opportunities for private contractors in rural areas?

JP: There are more smaller communities than larger communities, and in the Southeast, there are lots of small counties and towns. Solid waste management is sophisticated and heavily regulated, so companies like ours can offer more convenient solutions to these smaller communities or markets.

LP: We are attracted to the Southeast counties where cities are typically smaller and often have problems with taxes and Subtitle D implementation. They are faced with becoming an import county and running a regional landfill, which is sometimes untenable or they must decide to be an exporter.

We think they will decide to be exporters which will drive the opportunity to build transfer stations and export to regional landfills. However, if we find a county that would be a host, we would consider operating a regional landfill.

WW: Are there mistakes made by other large waste companies you intend to avoid?

LP: I don't want to leave anybody with the impression that large companies have a monopoly on mistakes; they plague small and large companies alike.

Mistakes by large companies are just more visible, and we're finding out that our mistakes are more visible too. But throughout our history, we have been actively involved in the Environmental Industry Associations and the Solid Waste Association of North America. Both organizations provide seminars and numerous networking opportunities that we've always taken advantage of.

WW: What are the industry's most profitable areas currently and in the future?

LP: The most profitable opportunities are in disposal and collection, both commercial and residential. An opportunity also exists in developing transfer stations to deal with the longer distances to landfills.

And, slowly, but surely, we are developing uses for recycled commodities. Five years from now, recyclables may be more profitable than they are today. There is a commitment by a lot of people to build plants that use them, and I believe some recyclable commodities will become a primary - rather than a supplemental- raw material source.

WW: How does this new era of solid waste consolidation differ from the past?

LP: In the past, most companies were growing primarily through mergers and acquisitions. They really didn't give much consideration to selling any of their operations.

What we see today are net buyers and net sellers. Some are selling operations that they no longer want or need. At the same time, they are acquiring operations that they do need.

This is a major shift in how consolidation is occurring. Today's consolidation includes a lot of very large companies merging with equally large companies. That was rare in the past.

WW: Is it a buyers' market in disposal?

LP: Yes, it is. You need a lot of volume to support a Subtitle D landfill, and to get that volume, and landfill operators have to be competitive. That is based on a market-by-market analysis, however. You can't generalize and say a national trend has emerged.

WW: Will the smaller, private contractors continue to thrive?

LP: Yes. The things that I mentioned earlier create a lot of niche and specialty markets. Small companies are suited to provide those services.

The large companies sometimes have difficulty providing the personalized part of collecting garbage. It is a personal service, and human contact always will be important to customers.

Looking at the number of companies that have been acquired by the larger companies since the '70s, there really should not be any small haulers out there.

But the fact is, there are still more than 6,000. If you include the Moms and Pops, there may be as many as 9,000. Apparently, they have survived and thrived and will continue to do so.

WW: What is the public sector's role?

LP: The public sector's role will be more regulatory in scope with less involvement in day-to-day operations.

Privatization has moved at a steady pace over the last 10 to 15 years, with the private companies having a greater market share. I see this trend continuing.

Trucks: 579 total vehicles. 149 roll-off; 115 front-end; 97 residential; 70 support; 31 transfer tractors; 110 trailers; 21 recycling; and five special (street sweeping, medical waste). Vehicles are primarily Volvo and Mack chassis with bodies by Heil, McNeilus and Leach. Recycling vehicles are by Kann and Labrie.

Containers: Residential carts: 32- to 95 gallon, Zarn. Recycling bins: 18 gallon, Rehrig. Commercial containers/ dumpsters (front-end and roll-off): two to 40 cubic yard, Bes Pac, L & M, Lewis Steel. Compactors, both self-contained and stationary: Accurate and Marathon.

Customers: 65,000 customers with 150,000 individual service points.

Employees: Full-time: 943; Total: 1,243.

Service area: North Carolina, South Carolina, and parts of Tennessee and Virginia. Expanding into other Sunbelt locations from 20 established branch locations.

Services: Recycling; construction and demolition debris removal and/or recycling; business and industry, wood waste collection & processing.

Local tipping fees: $0.00 to $78.00 per ton.

Processing facilities: Four recycling facilities (one handles comingled and three handle source separated material and one office paper collection facility which also does confidential document destruction). All facilities are based on simple design concepts which provide maximum efficiency with minimal capital outlay.