Texas Flood, A

When Mickey Flood founded IESI Corp. in Haltom City, Texas, in 1995, he knew exactly what not to do.

“I was disenchanted with the publicly traded waste companies,” says Flood, who had an extensive background in the waste business. “I wanted to create a company where I could draw quality people that could have fun, enjoy coming to work and have an intensity toward success that was appreciated and rewarded.”

If anyone knew how to run a successful waste company, it was Flood. He previously was one of four North American presidents for Waste Management Inc. when it was based in Oak Brook, Ill. He also had been president for Ft. Worth, Texas-based companies GSX and Laidlaw in their solid waste operations. And, he had managed companies that operated in the majority of the markets in North America.

“I started IESI when I bought a two-truck operation,” Flood recalls. “We’ve expanded by completing 125 acquisitions in the past five and a half years.”

The company, which in 2000 was ranked No. 13 on the Waste Age 100 listing of top private companies, has achieved success by seeking out some of the best people in the industry and then giving them latitude to do their jobs. “We create an environment in which our people make a difference,” Flood says, noting that his employees take part in the planning, implementation and control of running the business.

For example, Flood says he relies on his district managers’ extensive industry experience and gives them a lot of responsibility to implement the business strategy. “Most of our managers are seasoned veterans,” he says. “They’ve come from many different companies. I’ve been in this business since I was a kid. Most of them have worked with me over the years in many different companies.”

A Full-Service Company

The 1,300-employee company, which Waste Age estimated had $110.3 million in revenues in 1999, also has attracted supportive investors. Since the beginning of 1997, IESI has raised in excess of $140 million of private equity and has borrowing capacity of $200 million through a syndicated credit facility, which includes nine banks led by Fleet National Bank of Boston, Massachusetts. This funding has enabled the company to embark on a string of acquisitions to expand its customer base throughout the South (Arkansas, Louisiana, Missouri, Oklahoma and Texas) and Northeast (Maryland, New Jersey, New York and Pennsylvania).

“We focus on contiguous growth,” says Jeff Peckham, South Region vice president. “We’re expanding in all directions from our south base of operations. As an example, we recently acquired companies in Louisiana, which are adjacent to our Texas operations.”

IESI provides all types of non-hazardous waste collection, including commercial, residential, industrial, construction and demolition (C&D), and recycling. IESI also owns and operates transfer stations and landfills.

A key to success, company officials say, is managing disposal volumes and costs. “Either you utilize your own sites or you must have disposal agreements in place,” Peckham says. “We’ve been successful in our markets using this business strategy.”

The Companies It Keeps

Edging outward has proved successful for IESI, especially in Louisiana. Last November, the company purchased the assets of privately owned Omega One Co. Inc. and Omega One Waste LLC, which has operations in Shreveport, Alexandria, and Avoyelles Parish, La. The company also purchased assets in Louisiana from Waste Management Inc., Houston. These included one waste collection operation in Natchitoches, two municipal solid waste (MSW) transfer stations located in Alexandria and Natchitoches, and two MSW landfill contracts located near the towns of Jena and Many.

In addition to targeting companies to fill in a geographic gap, IESI’s acquisition strategy specifically looks for companies to acquire that are well-managed and provide a strategic fit. According to Flood, IESI’s guiding policy is that if a company is conducting business efficiently and profitably, those processes do not need to be changed.

IESI focuses on the retention of quality personnel. “The most important thing is to let [the companies we want to acquire] know that we need good people,” Peckham says. “We’re not there to change things unnecessarily. When you acquire a company that operates the right way, it’s likely because of the quality of the people. You want to build upon the existing base, not tear it down and start over.”

“This was the case with Omega One,” Peckham continues. The owner had focused on quality service, employees and steady growth. “Obviously, it was a good company, and we felt good about the way it had grown. Unlike a lot of other companies that acquire companies and then bring in their own people, we’ve been successful at retaining the people who have done a good job,” he says.

A second part of the company’s growth strategy is to acquire additional companies in the markets it serves. “We look for companies that we can integrate into our existing operations,” Flood explains. “These companies, commonly known as ‘tuck-ins,’ can be vertically integrated quickly into our existing network of collection operations, transfer stations and landfills.”

By deploying its acquisition strategies in new markets — particularly markets with municipal opportunities — IESI has had success in many areas of the country, as the company’s 125 municipal contracts in the Southwest prove. That also accounts for its decision to move into a tough market — New York City.

Tough Going in Gotham

In 1996, when New York City Mayor Rudolph Giuliani moved to break the stranglehold organized crime had on the commercial hauling sector, he set up the Trade Waste Commission, which regulates and licenses haulers and ensures that only honest companies were engaged in the business. Today, the mayor claims to have pushed more than 100 undesirable companies out of the business.

The mayor also sought to attract fresh competition, unsullied by mob connections, by encouraging large, nationally established public firms such as Waste Management, Browning-Ferris Industries and Republic Services into the sprawling market. IESI also was among the newly licensed firms that now are taking a bite out of the Big Apple’s commercial hauling business. The current number of authorized haulers in New York City is approximately 230.

Following its usual approach, Flood’s company moved in by acquiring companies and real estate from several family owned collection and recycling firms in New York.

“[The city was] looking for businesses that could make an investment in New York City and could offer a refreshing change from the cartel that had been operating for so many years,” Flood says. “We saw this as an opportunity to buy companies in New York City, which we have done.”

Today, IESI operates five transfer stations in the Bronx and Brooklyn, N.Y., and a paper recycling facility in Jersey City, N.J. Currently, the company hauls solid waste, construction and demolition debris, paper fiber of all kinds and even asbestos.

However, the move to honest competition in New York City has not been without its difficulties. “New York is a tough place to do business,” Flood admits. “Mayor Giuliani’s crackdown, while lowering the cost of garbage pickup, has made it difficult for companies to make a profit,” he says. “Companies have endured long approval process periods — some for four years or more, just for them to be licensed. The city also has a cap rate in place on hauling fees, which has made some types of businesses unprofitable to service.

“The cap they put on pricing is $12.20 a yard,” Flood continues. “It’s a fair cap for a good percentage of customers, but it’s a very inadequate cap for customers who are producing heavier weighted garbage. If you generate garbage that weighs 400 pounds per yard, 400 pounds is one-fifth of a ton. The disposal cost alone in New York is about $63 per ton. One fifth of that is about $12.50, so basically it would cost you more to dump one yard of garbage than you would be allowed to charge, and that’s before you even turned your truck on.”

Dealing with the heavier garbage issue has become so unprofitable and burdensome that last September, Waste Management dropped or sold 6,000 customers from its customer base in the city and stated it likely will drop others. Waste Management since has joined IESI and Scottsdale, Ariz.-based Allied Waste Industries to petition the commission to modify or amend the cap to account for customers who generate heavy waste or require special services. [See “Big Waste Industry Players Challenge New York’s Rate Cap,” Waste Age February 2001, page 28.]

“The New York City administration will need to cooperate to resolve this issue because no one can profitably pick up garbage that weighs 400 pounds per cubic yard within the framework of the pricing cap,” Flood says. “You just can’t do it.”

A Simple Philosophy

If all goes as planned, however, IESI will be successful in New York and elsewhere because managers have “focused their success” on their people, as Flood likes to say.

Obviously, becoming a garbage man just isn’t one of the careers that kids consider when they are growing up. Consequently, IESI regularly sends its staff to career days to spread the word about the opportunities within the company.

“There’s a desire for many people to work for a company that’s large enough to be responsive to its customers and people, but small enough to be known and not [have customers be] represented by a number,” Flood says. “That’s important to a lot of people. We encourage our people to be a part of the overall process. They’re aware of our goals, our mission statement, and they’re aware of the challenges we face. They’re also aware of our financing capabilities.”

Many companies simply “require their people to perform without being a part of the process or understand why they should be doing it,” Flood adds. “Our advantage is that many businesses and municipalities would rather do business with a private, locally focused company and because we are a trusted name. We work hard at becoming a part of the community.”

To create personal relationships between local company representatives and the customers it serves, IESI does not actively relocate its employees between operations. The company also encourages its employees to be a part of the community by serving on community boards and organizations, and by using a part of company proceeds to fund worthwhile local activities. “When we approach a potential municipal customer, we give that municipality a list of all of our other contract cities to call,” Flood says. “Not just a select few, but for every city we provide service for. We’re proud of the service that we offer our communities.”

The waste industry is, after all, a simple business at its core. “Fairly priced quality service is a necessary component for a satisfied customer,” Flood remarks.

Productivity is a key factor in the way IESI does business, and it relies on tracking systems to determine the most effective way to pick up waste. “We use a routing system to capture statistics for evaluating the success of our routes,” Peckham says.

“We try to keep things simple,” Flood adds. “We focus on efficiency, safety and customer service. It’s our employees who make those things happen — the right people with the right attitude. We really enjoy what we do, and the people in our company are excited about our accomplishments. Certainly that’s part of our success.”

IESI Profile

President and CEO: Mickey Flood

Services Provided: Collection, recycling, transfer, and disposal services. The company has 30 collection operations, 15 transfer stations, 9 landfills and 8 recycling facilities.

Service Area: The company is organized into two regions that include nine states. The South comprises Arkansas, Louisiana, Missouri, Oklahoma and Texas. The Northeast includes Maryland, New Jersey, New York and Pennsylvania.

Equipment: 540 collection vehicles with Accurate, New Way, Impac and McNeilus bodies with Mack, International and Volvo chassis. Eighty pieces of Caterpillar landfill equipment. Carts by Rehrig Pacific. Containers include front load 2-10 yard, side load 1-4 yard and rear load 1-2 yard by Wastequip Container, Roll-Offs of America and Advanced Waste.

No. and Types of Customers: 310,000 residential; 36,000 commercial and industrial. 125 municipal franchise agreements.

Number of Employees: Approximately 1,300.

Randy Southerland is an Atlanta-based free-lance writer.