Private equity firms enter expanding glass recycling market
Private equity firms from Chicago, with hundreds
of millions of dollars under management, now control the country’s
two largest glass recycling companies.
WHI Capital Partners (WHICP), with $100 million
under management, acquired Lombard, Illinois-based Container
Recycling Alliance LLC (CRA) in August. CRA is the second largest
glass recycling operation in the United States. It has 8 recycling
facilities throughout the country and processes roughly 500,000
tons of glass per year.
Adam Schecter, managing partner of WHICP,
would not reveal the purchase price or annual revenue numbers.
But according to the firm’s Web site, the private equity
firm invests in mature and profitable, mid-sized companies with
leading market positions and revenues of $10 million to $100
million. WHICP parent’s firm, William Harris Investors
Inc. is an asset management firm with more than $1 billion under
“CRA had most of the primary attributes
we look for in an investment,” Schecter said. CRA has
a strong leadership position, differentiation in the marketplace,
a strong management team, strong customer relationships and
high barriers to entry, Schecter said.
The glass recycling company is unique due to its
expertise in utilizing optical sorting technology to produce cullet,
the crushed and cleaned post-consumer glass used primarily for reuse
in new glass packaging, Schecter said. CRA uses state-of-the-art
automated ceramic detection and color sorting equipment as well
as full bottle destruction and decasing capabilities. CRA is able
to take in mixed color glass and optically clean the glass of contaminants
and then sort the glass by clear, brown and green colors.
Securing good, high quality supply is the biggest
issue facing the industry, Schecter said. He said the market for
recycled glass is a stable market with demand for clean recycled
glass far outstripping supply. “As long as energy prices continue
to be expensive, the current market conditions should continue or
get better,” Schecter said.
WHICP partnered with Tom Riek, chief executive
officer of CRA, to purchase the glass recycling division from Houston-based
Waste Management Inc, according to Schecter. Riek previously served
as president of CRA from 2001 to 2004 before being promoted to finance
director of Waste Management Recycle America (WMRA).
“From our perspective, this was a CEO-led
deal (with Tom Riek) and we welcome the opportunity to partner with
strong executives who have an interest in purchasing and growing
a company together,” Schecter said. “CRA produced some
of its most profitable years under Tom Riek and his team’s
leadership. Tom is a proven CEO.”
Riek agreed with Schecter’s market outlook.
“The demand for recycled glass is very strong and I would
expect that to continue. The challenge will be to continue to grow
the supply side of the market to closer meet the demand side,”
“The rise of energy costs has created strong
demand for clean cullet by the container manufacturers who are working
to maintain their profit margins. We look forward to working with
our customers and establishing new supply sources.”
Liz Johnson, spokesperson for Waste Management,
said that WMRA, North America’s largest provider of recycling
services, decided that some secondary processing assets, including
glass, were not a long-term fit. Therefore, it decided to sell CRA.
“A high level of interest was expressed
by various groups for the glass business, and after reviewing the
offers it was decided to divest of the group,” Johnson said.
“Glass recycling, like many other businesses,
is an evolving and challenging business. WMRA felt that focusing
on our core business and driving improvement in that area was a
better use of our assets.” WMRA, formed in 2003, combines
the assets and operations of domestic recycling processors and marketers
within Waste Management.
Another Chicago-based private equity firm owns
Strategic Materials Inc., headquartered in Houston. Strategic Materials
is the nation’s largest glass recycling company. It operates
a network of 31 processing plants and aggregation depots across
North America. It sells approximately 1.3 million tons of glass
cullet each year.
Strategic Materials is owned by Willis Stein &
Partners LP. The private equity firm has approximately $3 billion
under management. It invests in various industries with transaction
values ranging from $75 million to $750 million, according to its
Willis Stein purchased Strategic Materials from
Lincolnshire Management Inc., a New York private equity firm, for
$136 million in October 2005. According to a press release at the
time of the transaction, Lincolnshire realized an internal rate
of return of 32 percent on its investment in Strategic Materials,
which it purchased in 2002.
Curt Bucey, executive vice president and chief
operating officer of Strategic Materials said annual revenues at
the glass recycling company are around $160 million. Strategic buys
scrap glass from approximately 1,400 different suppliers each year.
Bucey said he expects these market conditions
to continue. “Demand has historically exceeded supply, but
glass prices don’t tend to increase like other materials,
as recycled glass is compared to the glass industries batch costs,”
Bucey said. Batch costs include sand, limestone, and soda ash, which
tend to not vary by much.
Freight costs are also impacting glass recyclers,
Bucey said. “Freight costs are a very high percentage of our
costs as glass is lower value material,” Bucey said.
Over the last few years container glass supply
across the country has been converting to low quality, single stream
from high quality color separated material, Bucey said. “This
conversion is causing all involved to invest considerable capital
dollars in order to be able to utilize the very low quality feedstock.”
Bucey said that deposit states generate the highest quality of glass
feedstock for glass recycling companies.
Americans generated 12.5 million tons of glass
in the solid waste stream in 2003, according the Environmental Protection
Agency. About 22 percent of the glass was recovered for recycling.
Soft drink, beer, food, wine, and liquor containers represent the
largest source of glass generated, according to the EPA. Glass in
durable goods, such as appliances and consumer electronics, round
out the sources of post-consumer glass.