Midwest Momentum

Advanced Disposal Services Inc. has gone on a bit of a spending spree buying up other waste haulers. It’s no surprise to one industry analyst, who says it’s been a long time coming for at least the old Veolia part of the company.

The Ponte Vedra, Fla.-based Advanced Disposal in late June and early July acquired Sheboygan-based Sheboygan Waste Materials Co.; Arrow Disposal LLC, in Port Washington, Wis.; Winsor Disposal in Kane Pa.; Valdosta Waste Services in Valdosta, Ga.; and Benson Disposal Services Inc. in Macon, Ill. Advanced Disposal also bought a transfer station in Roscoe, Ill., from G&E Eight Series LLC, also based in Roscoe.

The purchases have a common theme, says Michael Hoffman, director of research for Memphis, Tenn.-based Wunderlich Securities Inc. “The vast majority of them are in the old Veolia market. Veolia was a starved U.S. business for capital,” he says. “They’ve been on the sidelines forever when it comes to acquisitions. So this is not surprising the pipeline would open.”

Advanced Disposal acquired Veolia ES Solid Waste Inc. last year. Veolia’s former parent company, Paris-based Veolia Environnement, put the U.S. solid waste operations up for sale as part of a massive restructuring plan to raise $6.7 billion for reducing debt. Richard Burke, who had been CEO of Chicago-based Veolia Environmental Services North America Corp. (VESNA), became president of Advanced Disposal with the completion of the deal.

“There’s a laundry list of targets they’ve eyed for a long time when he was running that business,” Hoffman says.

Veolia was composed of the former Milwaukee-based Superior Services Inc. operations, he points out. “They had a huge share of that north to Chicago into Wisconsin, then Indiana and a little farther south. If you see where they’ve made those acquisitions it’s been around those Superior assets.”

Hoffman expects that trend to continue. Advanced Disposal has changed its board structure from going along subsidiary company lines to a regional basis of East, South and Midwest. “If someone said to me divide the growth capital up by percentages across the three regions I wouldn’t be surprised if 60-80 was the Midwest, 10-30 was the South and the rest was the East.”

And he sees the acquisition targets of Advanced Disposal continuing to be smaller firms – for the most part. One possible larger deal for Advanced Disposal could be if Kansas City, Kan.-based Deffenbaugh Industries Inc. was interested in selling.

“I’d have to imagine they’d love to own that, and that’s big, that’s $180 million in revenue,” he says. “But everything else is more like a half a million to 10 million (revenue dollars). But it’ll likely be in and around all the assets they already own in the Midwest. These are good old fashioned tuck-ins.” 

The pace should be steady for some time. But Advanced Disposal also needs to be prudent in its buying, because it is highly leveraged currently with the buy of Veolia and other bigger deals. The company needs to make acquisitions that will increase its earnings before interest, taxes, depreciation and amortization (EBITDA). “So they can’t do anything silly,” he says.

Hoffman believes it’s a possibility Advanced Disposal could exit from its remaining assets in the north.  There they have small pieces in Connecticut and Massachusetts, Vermont and Rhode Island. “There’s more likelihood that there’s a conversation going on between them and some of the players in those markets, both public and private, and they exit the north and they’re left in more of the East and Mid-Atlantic and be out of out of everything above New Jersey. That might not happen immediately, but I wouldn’t be surprised if we’re having this conversation a year from now.”