PE Firm Receives Due Diligence Support for Roll-Up of Waste Collection Companies

Background and challenge

A private equity (PE) client was looking at a platform acquisition in the waste collection and disposal market in a growing regional market. It engaged L.E.K. Consulting to conduct a due diligence, with a particular focus on the overall market opportunity, competitive dynamics and risks. 

Approach and recommendations

The platform company operated in two primary segments: the construction and demolition (C&D) waste market, and the municipal solid waste (MSW) market. For both segments, we assessed the metropolitan statistical area market demand, the competitive landscape and customers’ purchasing perspectives. Given its location, we also assessed the impact of tropical storms and hurricanes on the volatility of the target’s addressable market. 

After our client successfully completed the acquisition, we were again engaged to evaluate another company as a potential tuck-in acquisition — a solid waste management and recycling company focused on residential, commercial and industrial waste collection; hauling; and landfill management. For this target, we sized the current serviceable market for municipal solid waste collection in the company’s core markets. In addition, we determined how certain factors — for example, population growth in key geographies, waste generation per capita, trends in outsourcing of waste management — were expected to impact market growth. 

We also conducted primary interviews with competitors and customers (municipalities) to develop an understanding of market dynamics, key purchasing criteria, purchase process, the value chain and perceptions of the company. As part of this process, we identified additional tuck-in and stand-alone opportunities to expand the target’s operating footprint, as well as potential downstream asset acquisitions (e.g., landfills, transfer stations).

Results

For the platform acquisition, we concluded that the C&D market in the growing regional area was expected to have strong growth with significant volume bumps caused by storms. Pricing was growing at a steady pace, and the target had a strong competitive position in the market. As a result of our analysis, the PE firm moved forward with the acquisition, which gave them their initial foothold in waste management.

For the bolt-on acquisition, we projected steady earnings growth, driven primarily by population growth, a slight increase in waste generated per capita and rising prices. Customer stickiness in the form of renewal rates was as high as 90% because of its high levels of service, and we found that the target’s pricing was competitive. Based on these findings, we recommended that investing in this company would be an excellent path to expanding the platform’s geographic footprint.