Waste Management Expands Scope with Completion of Deffenbaugh Buy

Waste Management Inc. has completed its purchase of Deffenbaugh Disposal Inc., adding the Midwest waste and recycling firm with 2013 revenue of about $180 million in a purchase in excess of $400 million.

The deal went through after the Houston-based Waste Management agreed with the Justice Department earlier this month to divest small and commercial waste collection assets in Arkansas and Kansas, according to the department.

The largest waste and recycling company in the United States adds one of the largest privately held firms with the Kansas City, Kan.-based Deffenbaugh.

“The acquisition of the Deffenbaugh assets aligns perfectly with our stated goal of driving shareholder value by maximizing our focus on our core business,” said David Steiner, Waste Management president and CEO. “It also achieves one other important objective: replacing a portion of the divested 2014 Wheelabrator earnings at an attractive price.”

After Waste Management divests the required assets, Deffenbaugh represents about $176 million in revenue and $52 million of operating earnings before interest, taxes, depreciation and amortization (EBITDA) annually, according to a news release. Deffenbaugh’s assets include five collection operations, seven transfer stations, two recycling facilities, one Subtitle D landfill, and one construction and demolition (C&D) landfill.

When the deal was first reached last October, a long-time industry analyst called it a good deal for Waste Management. “It’s a fully integrated model with many customers, and it’s a contingent market business. It’s not overlapping,” says Michael E. Hoffman, managing director, institutional equity research for St. Louis-based Stifel, Nicolaus & Co. Inc. “To the degree that it’s always been their intention to find a way to replace the Wheelabrator EBITDA, and now they’ve replaced a quarter of it.”

For some time there’s been speculation that Deffenbaugh would be sold. Hoffman says he wasn’t surprised that Waste Management ended up being the buyer. “I think if they hadn’t sold Wheelabrator, they wouldn’t have shown up. Because they’re the buyer of last resort at this juncture. Virtually everybody else walked away.

“Most of the other buyers needed a step up in the tax basis. And the seller wasn’t really going to do that because they didn’t get a step up on a tax basis when they bought it six or seven years ago.”

Hoffman says that he believes Waste Management will incorporate Deffenbaugh with what he calls the new Waste Management way of doing things. “This is a business that was somewhat capital starved. So does Deffenbaugh lend itself to a CNG fleet conversion? Waste Management can fund that; Deffenbaugh probably couldn’t.”

Also, Waste Management usually changes the truck colors of a new acquisition immediately. Hoffman believes it may be more gradual with Deffenbaugh. “I’ll bet that in six months we’ll still see Deffenbaugh vehicles on the road. In fact I’ll say in two years we may still see that.”

Geographically the Deffenbaugh purchase is a good fit as well for Waste Management. “It improves their position in that particular region,” Hoffman says. “They had no exposure there. If I start looking at the white space on a map–and there isn’t a whole lot of white space on Waste Management’s map–that was a piece of white space.”

Deffenbaugh collected more than 1.7 million tons of waste and recyclable material, with the majority processed at its recycling facilities or disposed of at its landfills. The company employs about 1,000. It provides waste and recycling service for the Kansas City metropolitan area; Omaha, Neb.; St Joseph, Mo.; and Topeka, Kan., as well as in northwest Arkansas.