The pandemic may have introduced delays to waste and recycling M&A activity, but industry consolidation has forged on in 2020 – including in the New England market, with recent moves by Wheelabrator and Boston Carting Services.
Known for having some of the nation's highest tip fees, tight disposal capacity, tough weather conditions and robust waste diversion policies in certain states, the region presents many operational complexities. It also offers the potential for strong route density around certain metro areas, and plenty of opportunity for consolidation despite also being home to almost every major player in the industry.
Wheelabrator on the move
New Hampshire-based Wheelabrator Technologies is currently among the area's most active acquirers, as it pursues a vertical integration strategy following an alignment with Tunnel Hill Partners and City Carting after all were purchased by Macquarie Infrastructure & Real Assets (a division of Macquarie Group) in 2019.
After its initial acquisition of Charles George Companies earlier this year, multiple sources and records indicate Wheelabrator also purchased Shipyard Waste Solutions in Maine and United Materials Management (UMM) in Massachusetts.
Wheelabrator confirmed the Shipyard deal occurred shortly after Charles George in July, and also included the operations of Aggregate Recycling Corporation. The two are based in Eliot, Maine (along the New Hampshire border), and came with a range of hauling, transfer and recycling capabilities for multiple waste streams – including MSW and C&D.
The recently closed UMM transaction is a larger one that locks in key transfer capabilities for the region.
"The purchase of UMM complements our current collections and disposal operations and supports our ability to serve 115K waste and recycling customers across 275 routes throughout the Northeast," said Michelle Nadeau, Wheelabrator's director of communications, via email. "We appreciate the trust UMM has placed in us to guide this new partnership in New England, which will allow us to continue to build critical waste and environmental infrastructure, serve Massachusetts customers and communities and create new growth opportunities for employees.”
UMM was started in 2018 by CEO Scott Lemay, a serial entrepreneur who has founded, bought and sold numerous regional waste companies over the past 30 years. Lemay did not respond to a request for comment about what might be next for him.
The company – based in Westborough, Massachusetts – has two rail-served transfer stations, one C&D recycling facility and 55 vehicles servicing 34 routes. Multiple facilities are near or adjacent to existing Wheelabrator assets. UMM's service area spans multiple communities to the west and south of Boston; covering 22,000 residential customers, and 2,500 commercial and roll-off accounts.
According to Nadeau, these new assets provide "a direct connection to our Ohio landfills for MSW and C&D volumes, in addition to deliveries from our Champion City and Stoughton transfer station facilities" in Massachusetts. These latest deals expand Wheelabrator's footprint to 50 facilities handling 13 million tons of material per year, with 1,800 employees, across the U.S. and UK.
Access to large-scale transfer operations, especially rail-served locations, is increasingly desirable around Massachusetts as local incinerator capacity remains tight and regional landfills outside of the state face increasing scrutiny around expansion plans. This interest was illustrated by Republic Services' recent acquisition of Devens Recycling, a C&D operation with rail transfer capabilities, in a bid process multiple sources described as very competitive.
“I think moving volume out of New England is certainly a trend that’s going to continue, and that is due to the diminishing amount of transfer station and landfill capacity," said Doug Usifer, a managing director at the firm Capstone Headwaters, noting this thinking appears to fit into Wheelabrator's strategy. “It makes sense that type of platform would be attractive in Massachusetts or New England."
Other players on the rise
At the same time, Usifer said "the value is still strong" for hauling-focused companies to thrive in regions such as New England if they have sufficient route density and a good customer base.
For Boston Carting Services CEO Patsy Sperduto – who has his own long track record in the industry, including founding and selling the assets of a prior waste company – that model still looks like an attractive way to grow. Unlike some other parts of the U.S. where national players scooped up many local haulers long ago, that hasn't happened as much in New England.
“For some reason that big acquisition cycle never hit up here," he said. “The market is definitely very opportunistic for anybody that wants to roll people up."
Sperduto launched his latest company in 2018 with the acquisition of Jet-A-Way, followed by three other local haulers – including Sunrise Scavenger, which previously had a residential collection contract in Boston. In October, as a sign of future growth potential, Ironwood Capital announced subordinated debt and preferred equity investments in the company.
One element not announced in October was Boston Carting's acquisition, with Ironwood's backing, of the hauler FW Russell. Based in Somerville (directly adjacent to Boston), Russell services multiple residential contracts as well as a range of commercial customers throughout the region. According to Sperduto, this brings Boston Carting up to more than 70 routes running out of four locations, with a fairly equal split between residential, commercial and roll-off work.
Ironwood has a well-known track record of investing in middle market industry companies, including the former Action Environmental Services, which grew to become the largest commercial hauler in New York City. Current investments also include companies based in Maryland, Ohio and Texas.
Dickson Suit, a managing director at Ironwood, described the Boston market as a "vibrant" one with plenty of opportunities to expand despite tight disposal capacity and heavy competition.
“We think there’s robust growth there in Boston, so we’re not as nervous about that aspect of it," he said. "We look at markets where even though there is competition and big guys, the markets are rational."
Sperduto believes the disposal market will correct itself over time and the company is also open to potentially expanding beyond hauling. Suit said Ironwood and Boston Carting are looking at multiple opportunities for future acquisitions, ranging from tuck-ins to larger companies, and expansion into new markets is possible. Asked about potentially competing for deals with Wheelabrator – viewed by many as the most active acquirer in the region right now – Suit was not overly concerned.
“Clearly it sends a big signal that they’re going to be very active in this space," he said of the broader integration with Tunnel Hill and recent round of acquisitions. “They could be more aggressive, but I think that my view is they’re still focused on disposal and we could provide the waste streams."
Given the average five-year horizon for most Ironwood investments in the sector, Suit said it's also possible a company like Wheelabrator could provide an exit strategy down the line.
Sperduto described Wheelabrator's expansion as a "double-edged sword" of it being good to see a company paying fair value and improving operations, but also providing a "tough competitor" in the market.
More to come
While the pandemic's trajectory remains uncertain, and its onset delayed transactions for multiple companies, M&A activity has remained strong and that is expected to continue.
“We’re seeing deal volume pop back up in the end of 2020," said Usifer at Capstone. “It’s not going to achieve the levels of 2019, but I’d say it’s popping back up as a whole."
The industry also remains cyclical, with players reacting in various ways as the landscape changes. As one small example, multiple sources report New York-based ReEnergy recently launched a roll-off collection business out of its Boston transfer station (a site once owned by UMM's Lemay) to ostensibly compete with Wheelabrator's acquisition of Charles George. ReEnergy did not respond to a request for comment.
Public companies including Waste Management, Republic, Covanta and Casella Waste Systems also remain competitive in the area, with the latter on an acquisition run of its own in recent years. Waste Connections is expanding too, following the acquisition of multiple Rhode Island-based companies with hauling and transfer capabilities – including Patriot Disposal and Mega Disposal – since 2018.
Sperduto, who runs Boston Carting's office out of Rhode Island, described that area's consolidation as more pronounced than other parts of New England recently. “There’s really nobody left here in Rhode Island now," he said, referring to private operators. Boston Carting recently expanded its own routes to the state.
Asked whether Waste Connections could head further north, as it already has operations over the border in southern Massachusetts, Senior Vice President of Operations Jason Craft said via email that "we are always looking at quality companies."
Amid all of this activity, with more deals expected to come, many are also watching to see if or when the last remaining major player not yet in the area will make a move. GFL Environmental did not respond to a request for comment on whether New England activity could be in its future.