For the second year in row, Waste Connections is ringing in the New Year with a big acquisition.
The Toronto-based hauler announced the acquisition of Groot Industries, an Illinois-based firm with total annual revenue of approximately $200 million. The deal comes nearly a year after Waste Connections' mammoth merger with Progressive Waste Solutions Ltd.
The value of the deal was not announced, but Stifel analyst Michael E. Hoffman in a research note speculated Waste Connections paid in the range of $375 million to $400 million. Waste Connections began integration on Groot’s back office in November 2016 and estimates that the integration should be complete by the first quarter of 2017.
Founded over a century ago in 1914, Groot is the largest privately owned solid waste services company in Illinois. Groot serves approximately 300,000 customers primarily in northern Illinois from a network of six collection operations, six transfer stations and two recycling facilities.
"Groot is one of the most respected and best-in-class companies in our industry. With a majority of its operations contiguous to the Rock River assets we acquired in November 2015, Groot solidifies our leading position in these markets, increases potential internalization benefits of their disposal volumes into our existing landfills and further expands our platform for additional growth opportunities," Waste Connections Chairman and CEO Ronald J. Mittelstaedt said in a statement. "We are extremely pleased that Jon Groot and Ryan Brandsma will continue to lead Groot, and we expect that Groot's support and commitments to its employees, customers and the communities it serves throughout four generations of family ownership will be further strengthened under our stewardship."
According to Mittelstaedt, it’s very difficult for companies to make it to the second generation, let alone to the third or fourth. But Groot has proven itself by remaining strong as a fourth generation privately owned waste business in the U.S.
Hoffman called Groot Industries a “well-run collection operation” in a research note this morning. It has a sales mix of 75 percent collection, 20 percent transfer station and 5 percent recycling.
“We estimate Groot produces about 20 percent to 21 percent EBITDA margins in Year-1 given the mix of collection, transfer and recycling,” Hoffman wrote. “Capital spending for this portfolio should be less than the WCN average, at 5 percent to 6 percent. In Year-2, once all the volume is internalized, the margins should improve to 24 percent to 25 percent, bringing Groot in line with its own collection margins.”
"We look forward to joining the Waste Connections family and carrying on the Groot name within our markets,” Groot and Brandsma said in a statement. “We believe Waste Connections' leadership team, culture, decentralized operating philosophy and growth focus are the best fit for Groot. We previously had looked to acquire Rock River given the obvious merits of such a combination and are excited to be together under Waste Connections."
Brandsma, executive vice president of Groot, was born into the waste and recycling industry. Groot was started by Brandsma's great-grandfather. Brandsma started off as the lead operations manager at the young age of 25 and was promoted to general manager of his own division just a year later. In this role, he facilitated the acquisition of a company that was twice the size of his operation and created many synergies to turn the old, non-profitable company into a large, profitable operation.
Jonathan Groot’s father, Lawrence Groot, has been the CEO of Groot for more than 40 years.
Jonathan’s first real role at the company was a waste helper, and from there he moved on to become the lead operations manager at the age of 24. As operations manager, he streamlined 30 commercial routes by creating route density and enhancing the technology on the individual trucks for accountability. Just two years later, he was promoted again to general manager, where he led more than 100 employees in an emerging market. At the age of 28, Groot took on the role of senior vice president, where he has helped lead the company in two sizeable acquisitions, expand the company’s 17-year-old materials recovery facility, design and plan a new large-scale transfer station and expand the company into the Milwaukee market.
“We expect to have a very strong acquisition year and plan on doing our typical tuck-in acquisitions throughout the 40 states that we are present in,” says Mittelstaedt. “We will also most likely enter one or two new market entities throughout the course of the year. Beyond the recent Groot transaction, we expect a strong 2017.”