APRIL 2012

Consolidation trend significantly affects the solid waste industryClick to Enlarge

The number of municipal landfills in the U.S. has decreased from over 8,000 in the late 1980s to about 1,600 today. By 2004, two companies – Waste Management and Republic – came to own three-quarters of permitted landfill capacity in the U.S. That consolidation trend continues, with some major assets currently in play, and the impact on solid waste and recycling is likely to be significant.

“There is always some degree of consolidation in the solid waste industry, although its reasons and pace are dependent on a variety of factors, such as the economy, company expansions, acquisition multiples and changes in the industry,” said Bruce Parker, president and CEO of the Washington, D.C.-based National Solid Wastes Management Association.

Large national companies actively engaged in acquisition activity include Woodlands, Texas based Waste Connections, which on March 1 completed the acquisition of Alaska Waste, based in Anchorage. Toronto, Ontario based Progressive Waste Solutions acquired Waste Services, also of Toronto, in 2010. Houston headquartered Waste Management remains active as well, in February completing the acquisition of Reliable Environmental Transport (RET), which provides services to the natural gas exploration and production industry including transportation of hazardous waste. In July 2011, Waste Management made a major acquisition of Oakleaf, based in Hartford, Connecticut.

Consolidation is also being driven by a few large, regional independent firms, such as Longwood, Florida based Waste Pro, which in January acquired Acadian Waste Disposal Service in Gonzales, Louisiana. Jacksonville, Florida based Advanced Disposal Services has made more than 80 acquisitions for more than $475 million.

“A major story, still to be concluded, is the announcement by French-based Veolia Environmental that it is selling all of its U.S. solid wastes operations,” said Parker. “Whether these assets (29 landfills, 72 collection operations, 17 recycling facilities and 43 transfer stations) will be sold to a single buyer or piecemeal will nonetheless have a substantial effect on the industry.”

Forces behind it

Consolidation is being driven by a desire for regional expansion and the utilization of “tuck-in­­” acquisitions to purchase market share, technological capability or other assets by merging acquired companies into acquirers. Another factor is the desire to acquire material recycling facilities in the recognition that sustainability and materials conservation are changing the way that waste is being managed, Parker said.

“It’s also a favorable time for some companies to exit the industry,” Parker added. “Owners of these companies worry about increasing capital requirements to stay competitive, a potential increase in the capital gains tax, and waste volume expectations still remaining relatively static.”

Competitive forces drive much of the acquisition trend, agreed Jeremy O’Brien, director of applied research at the Solid Waste Association of North America in Silver Spring, Maryland. “Large waste management companies have the stated goal of vertical integration in regional marketplaces so that they can out compete others that can’t offer regional landfill capacity,” O’Brien said. “Companies will buy or sell local collection service providers in order to enhance their strength in the marketplace.”

Government policies have played a key role as well, O’Brien added. “When the new landfill regulations were issued by the federal government in the early 1990s, they kind of encouraged large regional landfills,” he says. States got in on the act too, attracted by the simplification afforded by permitting and overseeing fewer, larger landfills and companies.

Impacts of the trend

One result of all this is decreasing competition in solid waste disposal, O’Brien said. And that can produce higher fees for disposal. “The current trend toward the use of regional landfills is diminishing competition in the marketplace,” O’Brien said. “As a result, the economic benefits associated with the economies of scale associated with larger landfills are often offset by the charging of higher prices due to reduced levels of competition.”

O’Brien sees the consolidation trend as a potential problem for municipalities and others with waste to dispose of, as fewer companies increasingly control pricing. “There is a need to ensure that competition exists in the solid waste disposal marketplace to keep disposal prices competitively based,” he said.

Consolidation has implications for recycling as well. That’s because, as municipalities abandon publicly owned landfills for privately owned disposal facilities, local governments lose the tipping fees that used to support recycling efforts. The difference between what it cost to run municipal landfills and what was charged for disposing of waste there, in effect, funded recycling. “As that differential is eliminated then local governments have to come up with other ways to fund their programs,” O’Brien said.

One way that municipalities are coping with the new financial pressure is by reducing the frequency of curbside recycling collection from weekly to every other week, O’Brien said. The problem may become more intense, he said, if significant consolidation of material recycling facilities occurs. “The concern is there needs to be a healthy level of competition to keep prices low.”

Consolidation’s future

There is no sign that consolidation in solid waste will slow down soon, especially with the announcement in December that Veolia, a Paris, France-based business with operations in 77 countries and $46 billion in revenues, is exiting the solid waste business in the U.S. and looking for a buyer for its solid waste operations here.

O’Brien said that local governments are hamstrung in their efforts to develop publicly owned alternatives to the waste disposal system that is being increasingly dominated by ever-larger private firms. He said private companies are better positioned to fund the steep costs and plan for the long permitting cycles required for new landfills. So far, he said that municipalities seem willing to accept that they must pay others to accept their waste. “This trend is likely to continue unless local governments realize that there are economic benefits of managing their waste locally and begin to implement waste-to-energy and zero-waste management systems in their locales,” he said.

Meanwhile, expect consolidation to be a continuing factor in the field. “The long-range forecast for consolidation, which I consider to be over the next two to three years, is that it will continue and may hold a surprise or two,” said Parker. What those surprises might be, Parker said he doesn’t know. But, given the long-term trend toward more concentrated ownership of waste disposal industry assets, anything but more of the same would surprise most observers.